DiamondRock Hospitality CoDRH
DiamondRock Hospitality Co Income Taxes Disclosure
Income Taxes
We have elected to be treated as a REIT under the provisions of the Internal Revenue Code, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built in gains” on sales of certain assets. Our taxable REIT subsidiaries are subject to federal, state and local taxes.
For federal income tax purposes, the cash distributions paid to holders of our common stock, and historically to holders of our Series A Preferred Stock prior to its redemption on December 31, 2025, may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions, which could result in differences between cash basis and tax basis distribution amounts.
The following characterizes distributions paid to holders of common stock and Series A Preferred Stock on a tax basis for the years ended December 31, 2025, 2024, and 2023:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Common Stock | |||||||||||||||||
| Ordinary non-qualified income | $ | 0.360000 | $ | 0.320000 | $ | 0.120000 | |||||||||||
| Qualified dividends | — | — | — | ||||||||||||||
| $ | 0.360000 | $ | 0.320000 | $ | 0.120000 | ||||||||||||
| Series A Preferred Stock | |||||||||||||||||
| Ordinary non-qualified income | $ | 2.062500 | $ | 2.062500 | $ | 2.062500 | |||||||||||
| Qualified dividends | — | — | — | ||||||||||||||
| $ | 2.062500 | $ | 2.062500 | $ | 2.062500 | ||||||||||||
Our provision for income taxes consists of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Income before income taxes (1) | 100,711 | 49,791 | 86,952 | ||||||||||||||
| Income tax expense (benefit) | |||||||||||||||||
| Current tax expense | |||||||||||||||||
| Federal | 159 | 279 | (85) | ||||||||||||||
| State and local | 1,477 | 1,711 | 1,376 | ||||||||||||||
| Total current tax expense | 1,636 | 1,990 | 1,291 | ||||||||||||||
| Deferred tax benefit | |||||||||||||||||
| Federal | (2,121) | (367) | (743) | ||||||||||||||
| State and local | (747) | (83) | (232) | ||||||||||||||
| Total deferred tax benefit | (2,868) | (450) | (975) | ||||||||||||||
| Total income tax expense (benefit) | |||||||||||||||||
| Federal | (1,962) | (88) | (827) | ||||||||||||||
| State and local | 731 | 1,629 | 1,144 | ||||||||||||||
| Total income tax expense (benefit) | (1,231) | 1,541 | 317 | ||||||||||||||
(1)All income before income taxes was is attributable to the United States.
The reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense is as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Total | % | Total | % | Total | % | |||||||||||||||||||||
| U.S. federal statutory income tax rate | $ | 21,149 | 21.0 | % | $ | 10,456 | 21.0 | % | $ | 18,260 | 21.0 | % | ||||||||||||||
| Nontaxable and nondeductible items | ||||||||||||||||||||||||||
| Federal tax impact of REIT election | (21,163) | (21.0) | % | (10,129) | (20.3) | % | (17,315) | (19.9) | % | |||||||||||||||||
| Other | (133) | (0.1) | % | 15 | 0.0 | % | (188) | (0.2) | % | |||||||||||||||||
| Change in valuation allowance | (1,653) | (1.6) | % | (114) | (0.2) | % | (1,235) | (1.4) | % | |||||||||||||||||
Domestic state and local income taxes, net of federal effect (1) | 569 | 0.5 | % | 1,313 | 2.6 | % | 795 | 0.9 | % | |||||||||||||||||
| Total income tax expense (benefit) | $ | (1,231) | (1.2) | % | $ | 1,541 | 3.1 | % | $ | 317 | 0.4 | % | ||||||||||||||
(1)In 2025 and 2024, state and local income taxes in California, Illinois, Texas and Louisiana comprise the majority (greater than 50 percent) of the tax effect in this category. In 2023, state and local income taxes in Illinois and Texas comprise the majority (greater than 50 percent) of the tax effect in this category.
Income taxes paid, net of refunds are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| US Federal | $ | (602) | $ | (501) | $ | 700 | |||||||||||
| US State & Local | |||||||||||||||||
| California | 141 | 1,494 | 163 | ||||||||||||||
| Illinois | * | 1,854 | 607 | ||||||||||||||
| Louisiana | 283 | * | 565 | ||||||||||||||
| New York | * | 343 | * | ||||||||||||||
| Texas | 374 | 354 | 234 | ||||||||||||||
| Vermont | 104 | 306 | 159 | ||||||||||||||
| Massachusetts | 50 | * | * | ||||||||||||||
| Florida | 49 | * | * | ||||||||||||||
| Montana | 36 | * | * | ||||||||||||||
| South Carolina | 35 | * | * | ||||||||||||||
| Other | 61 | 804 | 238 | ||||||||||||||
| Total State & Local | 1,133 | 5,155 | 1,966 | ||||||||||||||
| Total income taxes paid, net of refunds | $ | 531 | $ | 4,654 | $ | 2,666 | |||||||||||
*The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.
Deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are paid. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. Deferred tax assets are included in prepaid and other assets and deferred tax liabilities are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The total deferred tax assets and liabilities are as follows (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Federal | |||||||||||
| Net operating loss carryforwards | $ | 1,085 | $ | 1,398 | |||||||
| Deferred income | 1,871 | 1,952 | |||||||||
| Other | 417 | 440 | |||||||||
| Depreciation and amortization | 316 | (570) | |||||||||
| Less: Valuation allowance | — | (1,653) | |||||||||
| Federal - Deferred tax assets, net | $ | 3,689 | $ | 1,567 | |||||||
| State | |||||||||||
| Net operating loss carryforwards | $ | 8,155 | $ | 8,525 | |||||||
| Deferred income | 510 | 528 | |||||||||
| Alternative minimum tax credit carryforwards | 231 | 231 | |||||||||
| Other | 126 | 130 | |||||||||
| Depreciation and amortization | 86 | (154) | |||||||||
| Less: Valuation allowance | (7,431) | (8,164) | |||||||||
| State - Deferred tax assets, net | $ | 1,677 | $ | 1,096 | |||||||
As of December 31, 2025, we had deferred tax assets of $9.2 million consisting of federal and state net operating loss carryforwards. The state loss carryforwards generally expire in 2031 through 2044 if not utilized by then; however, for certain states some loss carryforwards do not expire. The federal loss carryforwards do not expire.
We analyze our deferred tax assets for each jurisdiction and record a valuation allowance when we deem it more likely than not that future results will not generate sufficient taxable income to realize the deferred tax assets. During the year ended December 31, 2025, we released $2.4 million of the valuation allowance on our deferred tax assets related to one of our TRSs. The release was driven primarily by improved evidence of realizability, including cumulative taxable income over the most recent three-year period, the expected reversal of certain taxable temporary differences, and forecasted future taxable income. As of December 31, 2025, we had a valuation allowance of $7.4 million on our deferred tax assets, representing the portion of deferred tax assets that we do not expect to realize on a more-likely-than-not basis. Our assessment included, among other considerations, the future reversals of existing taxable temporary differences, future taxable income that can be reasonably projected, and jurisdiction-specific limitations on the utilization of state net operating loss carryforwards.About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.