Notes Payable

6 Months Ended

Jun. 30, 2023

Debt Disclosures

Notes Payable

6. Notes Payable

Notes payable consisted of the following (in thousands):

						Balance Outstanding as of
			Interest Rate			June 30,		December 31,
	Rate Type		at June 30, 2023		Maturity Date	2023		2022
						(unaudited)
Mortgage Loans
Hilton San Diego Bayfront	Partially fixed	(1)	N/A		December 9, 2023	$	—	$	220,000
JW Marriott New Orleans	Fixed		4.15	%	December 11, 2024		75,100		76,136
Total mortgage loans						$	75,100	$	296,136
Unsecured Corporate Credit Facilities
Term Loan 1	Partially fixed	(2)	5.94	%	July 25, 2027	$	175,000	$	175,000
Term Loan 2	Variable	(3)	6.59	%	January 25, 2028		175,000		175,000
Term Loan 3	Variable	(4)	6.59	%	May 1, 2025		225,000		—
Total unsecured corporate credit facilities						$	575,000	$	350,000
Unsecured Senior Notes
Series A	Fixed		4.69	%	January 10, 2026	$	65,000	$	65,000
Series B	Fixed		4.79	%	January 10, 2028		105,000		105,000
Total unsecured senior notes						$	170,000	$	170,000
Total notes payable						$	820,100	$	816,136

(1) The mortgage loan secured by the Hilton San Diego Bayfront was repaid on May 9, 2023, using proceeds received from the Company’s Term Loan 3. The mortgage loan was subject to an interest rate cap derivative (see Note 4). The effective interest rate on the loan was 5.571% at December 31, 2022.

(2) Term Loan 1 is subject to two interest rate swap derivatives (see Note 4). The variable interest rate is based on a pricing grid with a range of 1.35% to 2.20%, depending on the Company’s leverage ratios, plus SOFR and a 0.10% adjustment. In May 2023, the pricing grid was reduced by 0.02% to a range of 1.33% to 2.18% as the Company achieved the 2022 sustainability performance metric specified in the Second Amended Credit Agreement. The reduction in the pricing grid will be evaluated annually and is subject to the Company’s continued ability to satisfy its sustainability metric. The effective interest rates on the term loan were 5.94% and 5.82% at June 30, 2023 and December 31, 2022, respectively.

(3) Term Loan 2 was subject to an interest rate swap derivative until the swap expired in January 2023 (see Note 4). The variable interest rate is based on a pricing grid with a range of 1.35% to 2.20%, depending on the Company’s leverage ratios, plus SOFR and a 0.10% adjustment. In May 2023, the pricing grid was reduced by 0.02% to a range of 1.33% to 2.18% as the Company achieved the 2022 sustainability performance metric specified in the Second Amended Credit Agreement. The reduction in the pricing grid will be evaluated annually and is subject to the Company’s continued ability to satisfy its sustainability metric. The effective interest rates on the term loan were 6.59% and 4.27% at June 30, 2023 and December 31, 2022, respectively.

(4) On May 1, 2023, the Company entered into a term loan agreement (“Term Loan 3”) and drew a total of $225.0 million, of which $220.0 million was used to repay the mortgage loan secured by the Hilton San Diego Bayfront. The variable interest rate is based on a pricing grid with a range of 1.35% to 2.20%, depending on the Company’s leverage ratios, plus SOFR and a 0.10% adjustment. Term Loan 3 matures on May 1, 2025, with a one-time option to extend the loan by twelve months to May 1, 2026 upon the payment of applicable fees and the satisfaction of certain customary conditions. The Company also has the right to increase Term Loan 3 in an amount up to $50.0 million, for an aggregate facility of $275.0 million from lenders that are willing at such time to provide such increase. The effective interest rate on the term loan was 6.59% at June 30, 2023.

As of June 30, 2023, the Company had no amount outstanding on its credit facility, with $500.0 million of capacity available for borrowing under the facility. The Company’s ability to draw on the credit facility is subject to the Company’s compliance with various financial covenants.

Notes payable on the Company’s accompanying consolidated balance sheets are presented net of deferred financing costs as follows (in thousands):

	June 30,		December 31,
	2023		2022
	(unaudited)
Current portion of notes payable	$	2,122	$	222,086
Less: current portion of deferred financing costs		(57)		(56)
Carrying value of current portion of notes payable	$	2,065	$	222,030
Notes payable, less current portion	$	817,978	$	594,050
Less: long-term portion of deferred financing costs		(5,212)		(3,399)
Carrying value of notes payable, less current portion	$	812,766	$	590,651

Interest Expense

Total interest incurred and expensed on the notes payable and finance lease obligation was as follows (unaudited and in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest expense on debt and finance lease obligation	$	12,259	$	6,290	$	23,676	$	12,533
Noncash interest on derivatives, net		(3,711)		(1,023)		(1,879)		(2,865)
Amortization of deferred financing costs		675		671		1,220		1,351
Total interest expense	$	9,223	$	5,938	$	23,017	$	11,019