(1)

As described below, the Company entered into the Unsecured Debt Amendments (defined below) in July and December 2020. The July 2020 amendment added a 25-basis point LIBOR floor for the remaining term of the facilities and increased the applicable LIBOR margin for the term loan facilities to 220 basis points, the high point of the pricing grid. The December 2020 amendment fixed the applicable LIBOR margin at 240 basis points for the revolving credit facility and 235 basis points for the term loan facilities. After the Covenant Relief Period (defined below), the applicable LIBOR margins will revert back to the original terms of the pricing grid with a range of 135 to 220 basis points for the term loan facilities, depending on the Company’s leverage ratio. The effective interest rate of the $85.0 million term loan increased from 2.941% to 3.941%, and the effective interest rate of the $100.0 million term loan increased from 3.203% to 4.203%, in each case at December 31, 2019 and December 31, 2020, respectively.

(2)

As described below, the Company entered into the Unsecured Debt Amendments (defined below) in July and December 2020. The July and December 2020 amendments increased the annual interest rate on both of the senior notes by 1.00% and an additional 0.25%, respectively. As a result, the interest rate of the Series A Senior Notes increased from 4.69% to 5.94%, and the interest rate of the Series B Senior Notes increased from 4.79% to 6.04%, in each case at December 31, 2019 and December 31, 2020, respectively. After the Covenant Relief Period (defined below), the interest rates on the senior notes will decrease by 0.25%, depending on the Company’s leverage ratio, until the rates return to their original amounts.

Aggregate future principal maturities and amortization of notes payable at December 31, 2020, are as follows (in thousands):


2021	$	3,305	(1)
2022		88,446
2023		323,593	(1)
2024		75,614
2025		51,987
Thereafter		205,000
Total	$	747,945

(1)	Reflects the intended exercise of the remaining two one-year options to extend the maturity date of the $220.0 million loan secured by the Hilton San Diego Bayfront from December 2021 to December 2023.

Notes Payable Transactions - 2020

Secured Debt. In December 2020, the Company used proceeds received from its sale of the Renaissance Los Angeles Airport to repay the $107.9 million mortgage secured by the Renaissance Washington DC. The mortgage was set to mature in May 2021, but was available to be repaid without penalty beginning in November 2020.

Additionally, in December 2020, the Company exercised its first option to extend the maturity date of the mortgage secured by the Hilton San Diego Bayfront from December 2020 to December 2021. The Company intends to exercise the remaining two one-year options to extend the maturity to December 2023.

Finally, in December 2020, the Company executed an assignment-in-lieu agreement with the holder of the $77.2 million mortgage secured by the Hilton Times Square (see Note 4). As stipulated by the agreement, the Company satisfied all outstanding debt obligations, including regular and default interest or late charges that were assessed, in exchange for a $20.0 million payment, the credit of $3.2 million of restricted cash held by the noteholder and $0.8 million of the hotel’s unrestricted cash, the assignment of the Company’s leasehold interest in the Hilton Times Square, and the retention of certain potential employee-related obligations. In conjunction with this agreement, the Company wrote off approximately $22.2 million of various accrued expenses related to the hotel’s operating lease and sublease, including, but not limited to, accrued property taxes, recapture of deferred taxes due from a prior deferral period, accrued ground rent and accrued easement payments (see Notes 8 and 9). The Company removed the net assets and liabilities related to the hotel from its December 31, 2020 balance sheet; however, the Company retained approximately $11.6 million in certain current and potential employee-related obligations, which is currently held in escrow until those obligations are resolved (see Note 13). The Company recorded a $6.4 million gain on extinguishment of debt as a result of this transaction.

Unsecured Debt. In March 2020, the Company drew $300.0 million under the revolving portion of its credit facility as a precautionary measure to increase the Company’s cash position and preserve financial flexibility. In June 2020 and August 2020, the Company repaid $250.0 million and $11.2 million, respectively, of the outstanding credit facility balance after determining that it had sufficient cash on hand in addition to access to its credit facility. In addition, in August 2020, the Company used a portion of the proceeds it received from the sale of the Renaissance Harborplace to repay $38.8 million of the outstanding credit facility balance as stipulated in the Unsecured Debt Amendments described below.

At December 31, 2020, the Company has no amount outstanding on the revolving portion of its amended credit facility, with $500.0 million of capacity available for additional borrowing under the facility. The Company’s ability to draw on the revolving portion of the amended credit facility may be subject to the Company’s compliance with various financial covenants on its secured and unsecured debt. The revolving portion of the amended credit agreement matures on April 14, 2023, but may be extended for two six-month periods to April 14, 2024, upon the payment of applicable fees and satisfaction of certain customary conditions.

In September 2020, the Company repaid $35.0 million of its senior notes, comprising $30.0 million to the Series A note holders and $5.0 million to the Series B note holders, using a portion of the proceeds the Company received from the sale of the Renaissance Harborplace as stipulated in the Unsecured Debt Amendments described below. In conjunction with the repayments, the Company recorded a $0.2 million loss on extinguishment of debt related to the write-off of deferred financing costs.

In July and December 2020, the Company completed amendments to its unsecured debt, consisting of its revolving credit facility, term loans and senior notes (the “Unsecured Debt Amendments”). The Unsecured Debt Amendments were deemed to be debt modifications and accounted for accordingly. Key terms of the Unsecured Debt Amendments include:

●

Waiver of required financial covenants through the end of the first quarter of 2022, with quarterly testing resuming for the period ending March 31, 2022 (the “Covenant Relief Period”). The Company can elect to terminate the Covenant

Relief Period early, subject to the achievement of the original financial covenants at the end of any quarterly measurement period;

●

Following the end of the Covenant Relief Period, original financial covenants will be phased-in over the following four quarters to ease compliance;

●

Continued payment of existing preferred stock dividends and the ability to issue up to $200.0 million of additional preferred stock, subject to the satisfaction of certain conditions;

●

Unlimited ability to fund future acquisitions with proceeds from the issuance of common equity or through the sale of unencumbered hotels;

●

Flexibility to invest up to $250.0 million into acquisitions (in addition to acquisitions funded with equity or with hotel sale proceeds) subject to maintaining certain minimum liquidity thresholds;

●

Ability to invest up to $100.0 million into capital improvements during 2021;

●

Ability to pay dividends on common stock to the extent required to maintain REIT status and comply with IRS regulations;

●

Addition of a 25-basis point LIBOR floor for the remaining term of the revolving credit facility and term loan facilities. The applicable LIBOR spread for each of the facilities is fixed during the Covenant Relief Period at 240 basis points for the revolving credit facility and 235 basis points for the term loan facilities, which is the high end of the pricing grid plus 15 basis points;

●

Addition of 125 basis points to the annual interest rate of the senior notes during the Covenant Relief Period which will decrease by 25 basis points following the Covenant Relief Period until the Company’s leverage ratio is below 5.0x as follows:

o

Until the Company achieves a leverage ratio less than 6.50x, the interest rate on the senior notes will be increased by 100 basis points;

o

From the period the leverage ratio is less than 6.50x but greater than 5.00x the interest rate on the senior notes will be increased by 75 basis points; and

●

Addition of certain restrictions and covenants during the Covenant Relief Period including, but not limited to, restrictions on share repurchases, maintenance of minimum liquidity of at least $180.0 million, certain required mandatory debt prepayments on asset sales and equity issuances (if funds are not used to purchase assets) and restrictions on the incurrence of new indebtedness.

Deferred Financing Costs and Gain (Loss) on Extinguishment of Debt

Deferred financing costs and gain (loss) on extinguishment of debt for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):


	2020 (1)		2019		2018 (2)
Payments of deferred financing costs	$	4,361	$	—	$	4,012

Gain (loss) on extinguishment of debt	$	6,146	$	—	$	(835)

(1)

During 2020, the Company paid a total of $4.4 million in deferred financing costs related to the Unsecured Debt Amendments. In addition, the Company recognized a net gain on extinguishment of debt of $6.1 million, comprising a gain of $6.4 million related to the Company’s assignment-in-lieu agreement with the Hilton Times Square’s mortgage holder and a loss of $0.2 million related to the Company’s repayment of a portion of the senior notes.

(2)	During 2018, the Company paid a total of $4.0 million in deferred financing costs and incurred a loss on extinguishment of debt totaling $0.8 million related to its credit facility amendment and extension and term loans repricing.

Interest Expense

Total interest incurred and expensed on the notes payable and finance lease obligations for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands):


	2020		2019		2018
Interest expense on debt and finance lease obligations	$	45,441	$	45,381	$	45,933
Noncash interest on derivatives and finance lease obligations, net		4,740		6,051		(1,190)
Amortization of deferred financing costs		3,126		2,791		2,947
Total interest expense	$	53,307	$	54,223	$	47,690