DiamondRock Hospitality Co

Previous wording

DiamondRock Hospitality Company is a lodging-focused Maryland corporation operating as a REIT for U.S. federal income tax purposes. As of March 31, 2024, we owned a portfolio of 36 premium hotels and resorts that contain 9,757 guest rooms located in 25 different markets in the United States. The markets that we target are those that we believe align with our strategic objectives, which include investing in assets in destination markets with constrained supply trends, those that provide geographic diversity relative to our existing portfolio, and those markets that are considered to have high growth potential.

Current wording

DiamondRock Hospitality Company is a lodging-focused Maryland corporation operating as a REIT for U.S. federal income tax purposes. As of June 30, 2024, we owned a portfolio of 36 premium hotels and resorts that contain 9,760 guest rooms located in 25 different markets in the United States. The markets that we target are those that we believe align with our strategic objectives, which include investing in assets in destination markets with constrained supply trends, those that provide geographic diversity relative to our existing portfolio, and those markets that are considered to have high growth potential.

Previous wording

On April 15, 2024, we announced leadership changes and a simplified organizational structure, including (i) the appointment of Jeffrey J. Donnelly as our Chief Executive Officer, (ii) the appointment of Briony R. Quinn as our Executive Vice President, Chief Financial Officer and Treasurer and (iii) the appointment of Justin L. Leonard as our President, all effective as of April 15, 2024. Ms. Quinn will serve as both the principal financial officer and principal accounting officer and Mr. Leonard will also maintain his role as Chief Operating Officer and will assume the responsibilities previously overseen by Troy G. Furbay. In connection with these appointments, we also announced (i) the departure of Mark W. Brugger as President and Chief Executive Officer and (ii) the departure of Troy G. Furbay as Executive Vice President and Chief Investment Officer, each effective as of April 15, 2024.

Current wording

On April 15, 2024, we announced leadership changes and a simplified organizational structure, including (i) the appointment of Jeffrey J. Donnelly as our Chief Executive Officer, (ii) the appointment of Briony R. Quinn as our Executive Vice President, Chief Financial Officer and Treasurer and (iii) the appointment of Justin L. Leonard as our President, all effective as of April 15, 2024. Ms. Quinn also serves as the principal financial officer and Mr. Leonard maintained his role as Chief Operating Officer and also assumed the responsibilities previously overseen by Troy G. Furbay. In connection with these appointments, we also announced (i) the departure of Mark W. Brugger as President and Chief Executive Officer and (ii) the departure of Troy G. Furbay as Executive Vice President and Chief Investment Officer, each effective as of April 15, 2024. On May 15, 2024, we announced the appointment of Stephen M. Spierto as our Chief Accounting Officer. Mr. Spierto will serve as the Company’s principal accounting officer. On June 3, 2024, Anika C. Fischer joined the Company as Senior Vice President and General Counsel. Ms. Fischer assumed legal responsibilities from William J. Tennis, the Company's former Executive Vice President and General Counsel, effective June 30, 2024, consistent with his previously announced retirement.

Previous wording

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:

Current wording

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

Previous wording

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 64% of our total revenues for the three months ended March 31, 2024 and is dictated by demand, as measured by occupancy percentage, pricing, as measured by ADR, and our available supply of hotel rooms.

Current wording

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 65% of our total revenues for the six months ended June 30, 2024 and is dictated by demand, as measured by occupancy percentage, pricing, as measured by ADR, and our available supply of hotel rooms.

Previous wording

The following tables set forth certain operating information for the three months ended March 31, 2024 for each of our hotels owned during the period.

Current wording

The following tables set forth certain operating information for the six months ended June 30, 2024 for each of our hotels owned during the period.

Previous wording

At March 31, 2024 and 2023, we owned 36 and 35 hotels, respectively. All properties owned during these periods have been included in our results of operations during the respective periods since their date of acquisition. Based on when a property was acquired, operating results for certain properties are not comparable for the three months ended March 31, 2024 and 2023. The property detailed in the table below is hereinafter referred to as a “non-comparable property” and all other properties are referred to as “comparable properties”:

Current wording

At June 30, 2024 and 2023, we owned 36 and 35 hotels, respectively. All properties owned during these periods have been included in our results of operations during the respective periods since their date of acquisition. Based on when a property was acquired, operating results for certain properties are not comparable for the three and six months ended June 30, 2024 and 2023. The property detailed in the table below is hereinafter referred to as a “non-comparable property” and all other properties are referred to as “comparable properties”:

Previous wording

Rooms revenues increased by $2.8 million from the three months ended March 31, 2023 to the three months ended March 31, 2024, $1.3 million of which was due to the acquisition of the non-comparable property. The remaining increase of $1.5 million was the result of improved occupancy at our urban hotels as group and corporate travel continued to improve, partially offset by declines in occupancy and ADR at our resort hotels due to normalizing of leisure demand.

Current wording

Rooms revenues increased by $6.2 million from the three months ended June 30, 2023 to the three months ended June 30, 2024, $1.5 million of which was due to the acquisition of the non-comparable property. The remaining increase of $4.7 million was the result of improved occupancy at our resort hotels and increased ADR at our urban hotels.

Previous wording

The following are key hotel operating statistics for the three months ended March 31, 2024 and 2023. The 2023 operating statistics reflect the period in 2023 comparable to our ownership period in 2024 for the hotel acquired in 2023.

Current wording

The following are key hotel operating statistics for the three months ended June 30, 2024 and 2023. The 2023 operating statistics reflect the period in 2023 comparable to our ownership period in 2024 for the non-comparable property.

Previous wording

Food and beverage revenues increased $8.6 million from the three months ended March 31, 2023 to the three months ended March 31, 2024, $1.5 million of which was due to the acquisition of the non-comparable property. The remaining increase was primarily due to increases in both banquet revenues and audio visual revenues.

Current wording

Food and beverage revenues increased $9.7 million from the three months ended June 30, 2023 to the three months ended June 30, 2024, $1.5 million of which was due to the acquisition of the non-comparable property. The remaining increase was primarily due to increases in both banquet revenues and audio visual revenues, driven by an increase in group business during the quarter.

Previous wording

Other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, increased by $1.4 million from the three months ended March 31, 2023 to the three months ended March 31, 2024, $0.5 million of which was due to the acquisition of the non-comparable property. The remaining increase of $0.9 million was primarily due to increases in resort fees.

Current wording

Other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, increased by $2.1 million from the three months ended June 30, 2023 to the three months ended June 30, 2024, $0.6 million of which was due to the acquisition of the non-comparable property. The remaining increase of $1.5 million was primarily due to increases in resort fees and parking.

Previous wording

Corporate expenses. Corporate expenses principally consist of employee-related costs, including payroll, bonus, restricted stock and benefits. Corporate expenses also include corporate operating costs, professional fees and directors' fees. Our corporate expenses increased $1.0 million, or 13.2% from the three months ended March 31, 2023 primarily due to an increase in employee-related costs. During the three months ended March 31, 2024, the Company's Executive Vice President, General Counsel and Corporate Secretary announced his intention to retire effective June 30, 2024, resulting in a $0.8 million accelerated recognition of his equity based compensation.

Current wording

Corporate expenses. Corporate expenses principally consist of employee-related costs, including payroll, bonus, restricted stock and benefits. Corporate expenses also include corporate operating costs, professional fees and directors' fees. Our corporate expenses increased $20.2 million from the three months ended June 30, 2023 primarily due to $20.4 million of severance expense recognized due to the leadership changes announced in April 2024 and severance payments to the former Chief Executive Officer and Chief Investment Officer pursuant to their respective severance agreements. We do not expect to recognize any additional severance expense in the second half of the year associated with our previously announced leadership changes.

Previous wording

Interest expense. Our interest expense decreased $0.9 million, from the three months ended March 31, 2023 to the three months ended March 31, 2024, and was comprised of the following (in millions):

Current wording

Interest expense. Our interest expense increased $0.6 million from the three months ended June 30, 2023 to the three months ended June 30, 2024 and was comprised of the following (in thousands):

Previous wording

Our hotel operating expenses increased $14.3 million from the three months ended March 31, 2023 to the three months ended March 31, 2024, $3.2 million of which was due to the acquisition of the non-comparable property. The remaining increase in hotel operating expenses was primarily due to increased occupancy and related labor costs. Other property-level expenses increased due to higher property tax assessments and insurance premiums.

Current wording

Our hotel operating expenses increased $26.4 million from the six months ended June 30, 2023 to the six months ended June 30, 2024, $6.4 million of which was due to the acquisition of the non-comparable property. The remaining increase in hotel operating expenses was primarily due to higher occupancy levels and increased labor costs. Other property-level expenses increased due to higher property tax assessments and insurance premiums.

Previous wording

Depreciation and amortization. Depreciation and amortization on our hotel buildings is generally recorded over a 40 year period 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 $0.8 million, or 3.1%, from the three months ended March 31, 2023 primarily due to the acquisition of the non-comparable property, as well as renovations and rebrandings that were completed in 2023.

Current wording

Depreciation and amortization. Depreciation and amortization on our hotel buildings is generally recorded over a 40 year period 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 $0.9 million, or 1.6%, from the six months ended June 30, 2023 primarily due to the acquisition of the non-comparable property.

Previous wording

Our short-term liquidity requirements consist primarily of funds necessary to pay our scheduled debt service, near term debt maturities, operating expenses, ground lease payments, capital expenditures directly associated with our hotels, any share repurchases, distributions to our common and preferred stockholders, cash severance payments related to our previously announced leadership changes, and the cost of acquiring additional hotels. Other than scheduled debt service payments, we have one mortgage loan that matures this year, which has a principal balance of $73.9 million as of March 31, 2024. We intend to repay this mortgage loan using cash on hand.

Current wording

Our short-term liquidity requirements consist primarily of funds necessary to pay our scheduled debt service, near term debt maturities, operating expenses, ground lease payments, capital expenditures directly associated with our hotels, any share repurchases, distributions to our common and preferred stockholders, and the cost of acquiring additional hotels. Other than scheduled debt service payments, we have one mortgage loan that matures on August 6, 2024, which has a principal balance of $73.4 million as of June 30, 2024. We intend to repay this mortgage loan using cash on hand.

Previous wording

We believe that we maintain a reasonable amount of debt. As of March 31, 2024, we had $1.2 billion of debt outstanding with a weighted average interest rate of 5.22% and a weighted average maturity date of approximately 2.4 years, assuming all extension options available in our debt agreements are exercised. We have one mortgage loan maturing in August 2024, which we intend to repay using cash on hand. As of March 31, 2024, 32 of our 36 hotels are unencumbered by mortgage debt. We remain committed to our core strategy of prudent leverage.

Current wording

We believe that we maintain a reasonable amount of debt. As of June 30, 2024, we had $1.2 billion of debt outstanding with a weighted average interest rate of 5.22% and a weighted average maturity date of approximately 2.2 years, assuming all extension options available in our debt agreements are exercised. We have one mortgage loan maturing on August 6, 2024, which we intend to repay using cash on hand, and two additional mortgage loans and our $300 million term loan that mature in the next 12 months. We intend to exercise our right to extend our $300 million term loan an additional year, which would bring its maturity date to January 3, 2026. We intend to refinance the other mortgage loans that mature in 2025 as they approach their respective maturity dates. In the case that refinancing options are not attractive, we may repay such mortgage loans using our senior unsecured revolving credit facility. As of June 30, 2024, 32 of our 36 hotels are unencumbered by mortgage debt. We remain committed to our core strategy of prudent leverage.

Previous wording

We maintain 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.

Current wording

We maintain 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, which is scheduled to expire pursuant to its terms on August 6, 2024. We expect to replace the ATM Program prior to its expiration.

Previous wording

We are party to a Sixth Amended and Restated Credit Agreement that provides us with a $400 million senior unsecured revolving credit facility and two term loan facilities in the aggregate amount of $800 million. The revolving credit facility matures on September 27, 2026, which we may extend for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. The term loan facilities consist of a $500 million term loan that matures on January 3, 2028 and a $300 million term loan that matures on January 3, 2025. The maturity date of the $300 million term loan may be extended for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. We have the right to increase the aggregate amount of the facilities to $1.4 billion upon the satisfaction of certain standard conditions.

Current wording

We are party to a Sixth Amended and Restated Credit Agreement that provides us with a $400 million senior unsecured revolving credit facility and two term loan facilities in the aggregate amount of $800 million. The revolving credit facility matures on September 27, 2026, which we may extend for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. The term loan facilities consist of a $500 million term loan that matures on January 3, 2028 and a $300 million term loan that matures on January 3, 2025. The maturity date of the $300 million term loan may be extended for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. We intend to exercise our right to extend our $300 million term loan an additional year. We have the right to increase the aggregate amount of the facilities to $1.4 billion upon the satisfaction of certain standard conditions.

Previous wording

-22- of cash are acquisitions of hotel properties, debt service and maturities, share repurchases, capital expenditures, operating costs, ground lease payments, corporate expenses, and distributions to holders of common stock, common OP units and preferred stock. As of March 31, 2024, we had $120.1 million of unrestricted cash, $45.2 million of restricted cash and no outstanding borrowings on our senior unsecured credit facility.

Current wording

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 any hotel dispositions. Our principal uses of cash are acquisitions of hotel properties, debt service and maturities, share repurchases, capital expenditures, operating costs, ground lease payments, corporate expenses, and distributions to holders of common stock, common OP units and preferred stock. As of June 30, 2024, we had $125.2 million of unrestricted cash, $45.2 million of restricted cash and no outstanding borrowings on our senior unsecured credit facility.

Previous wording

Our net cash provided by operations was $31.2 million for the three months ended March 31, 2024. Our cash from operations generally consists of the net cash flow from hotel operations, offset by cash paid for corporate expenses, interest payments, and other working capital changes. The decrease of $26.8 million in cash provided by operations from the three months ended March 31, 2023 was primarily driven by timing differences related to collections from our hotel managers.

Current wording

Our net cash provided by operations was $87.0 million for the six months ended June 30, 2024. Our cash from operations generally consists of the net cash flow from hotel operations, offset by cash paid for corporate expenses, interest payments, and other working capital changes. The decrease of $27.5 million in cash provided by operations from the six months ended June 30, 2023 was primarily driven by timing differences related to collections from our hotel managers and severance payments related to our previously announced leadership changes.

Previous wording

Our net cash used in investing activities was $18.9 million for the three months ended March 31, 2024, which consisted of capital expenditures at our hotels.

Current wording

Our net cash used in investing activities was $35.8 million for the six months ended June 30, 2024, which consisted of capital expenditures at our hotels.

Previous wording

Our net cash used in financing activities was $14.3 million for the three months ended March 31, 2024, which consisted of $6.5 million of distributions paid to holders of common stock and common OP units, $2.5 million of distributions paid to holders of preferred stock, $2.5 million of scheduled mortgage debt principal payments, and $2.9 million paid to repurchase shares upon the vesting of restricted stock for the payment of tax withholding obligations.

Current wording

Our net cash used in financing activities was $47.9 million for the six months ended June 30, 2024, which consisted of $12.9 million of distributions paid to holders of common stock and common OP units, $4.9 million of distributions paid to holders of preferred stock, $4.9 million of scheduled mortgage debt principal payments, $4.6 million paid to repurchase shares upon the vesting of restricted stock for the payment of tax withholding obligations, and $20.6 million of shares repurchased under our new share repurchase program.

Previous wording

We currently anticipate our significant source of cash for the remainder of the year ending December 31, 2024 will be the net cash flow from hotel operations. We expect our estimated uses of cash for the remainder of the year ending December 31, 2024 will be scheduled debt service payments and maturity payments, capital expenditures, distributions to preferred and common stockholders, corporate expenses, and cash severance payments related to our previously announced leadership changes.

Current wording

We currently anticipate our significant source of cash for the remainder of the year ending December 31, 2024 will be the net cash flow from hotel operations. We expect our estimated uses of cash for the remainder of the year ending December 31, 2024 will be scheduled debt service payments and maturity payments, capital expenditures, distributions to preferred and common stockholders, share repurchases and corporate expenses.

Previous wording

For each of the three months ended March 31, 2024 and 2023, we paid an aggregate cash dividend of $0.3 per share or unit to holders of our common stock, common OP units, and LTIP units.

Current wording

For each of the six months ended June 30, 2024 and 2023, we paid an aggregate cash dividend of $0.06 per share or unit to holders of our common stock, common OP units, and LTIP units.

Previous wording

For each of the three months ended March 31, 2024 and 2023, we paid an aggregate cash dividend of $0.5156 per share to holders of our Series A Preferred Stock.

Current wording

For each of the six months ended June 30, 2024 and 2023, we paid an aggregate cash dividend of $1.0313 per share to holders of our Series A Preferred Stock.

Previous wording

The management and franchise agreements for each of our hotels provide for the establishment of separate property improvement reserves 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, 2024, we have set aside $41.2 million for capital projects in property improvement reserves, which are included in restricted cash on our consolidated balance sheet.

Current wording

The management and franchise agreements for each of our hotels provide for the establishment of separate property improvement reserves 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 June 30, 2024,

Previous wording

In 2024, we expect to spend approximately $100 million on capital improvements at our hotels, of which we have invested approximately $18.9 million during the three months ended March 31, 2024. Significant projects in 2024 include the following:

Current wording

In 2024, we expect to spend approximately $90 million to $100 million on capital improvements at our hotels, of which we have invested approximately $35.8 million during the six months ended June 30, 2024. Significant projects in 2024 include the following:

Previous wording

•Westin San Diego Bayview: In late 2023, we commenced a comprehensive renovation of the hotel's guestrooms, which is expected to be completed in the second quarter of 2024.

Current wording

•Westin San Diego Bayview: We substantially completed a comprehensive renovation of the hotel's guestrooms during the second quarter of 2024.

Previous wording

•Orchards Inn Sedona: We expect to commence a repositioning of Orchards Inn as the Cliffs at L'Auberge. The project will integrate the hotel with the adjacent L'Auberge de Sedona and include construction of a new pool connecting the two properties, renovation of the guestrooms and creation of a new arrival experience and new outdoor event space. The project is expected to be completed in 2025.

Current wording

•Orchards Inn Sedona: We expect to commence a repositioning of Orchards Inn as the Cliffs at L'Auberge in the fourth quarter of 2024. The project is expected to be completed in 2025 and will integrate the hotel with the adjacent L'Auberge de Sedona and include construction of a new pool connecting the two properties, renovation of the guestrooms and creation of a new arrival experience and new outdoor event space.

Previous wording

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.

Current wording

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

Previous wording

•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: 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

Current wording

•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

Previous wording

Inflation has increased recently to levels not seen in years. The United States Federal Reserve has raised interest rates in response to concerns about inflation. During the first quarter of 2024, inflation continued to persist at levels above the Federal Reserve's target level. The Federal Reserve has indicated it will remain data dependent in determining whether to continue to raise or slowly ease interest rates during 2024. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty, and increasing the cost of new indebtedness and servicing our outstanding variable rate debt.

Current wording

Inflation has increased recently to levels not seen in years. The United States Federal Reserve has raised interest rates in response to concerns about inflation. During the first half of 2024, inflation continued to persist at levels above the Federal Reserve's target level. The Federal Reserve has indicated it will remain data dependent in determining whether to continue to raise, hold at current levels or slowly ease interest rates during 2024. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty, and increasing the cost of new indebtedness and servicing our outstanding variable rate debt.