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Debt

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 4

Debt

Summary

As of December 31, 2019 and 2018, the Company’s debt consisted of the following (in thousands):

		December 31, 2019				December 31, 2018
Revolving credit facility		$	50,900			$	268,800
Term loans, net			813,934				653,382
Mortgage debt, net			455,573				490,060
Debt, net		$	1,320,407			$	1,412,242

The aggregate amounts of principal payable under the Company’s total debt obligations as of December 31, 2019 (including the revolving credit facility, term loans and mortgage debt), for the five years subsequent to December 31, 2019 and thereafter are as follows (in thousands):

2020		$	28,349
2021			47,586
2022			160,152
2023			295,615
2024			337,981
Thereafter			456,184
			1,325,867
Unamortized fair value adjustment of assumed debt			2,526
Unamortized debt issuance costs related to term loans and mortgage debt			(7,986	)
Total		$	1,320,407

The Company uses interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”). The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at December 31, 2019 and 2018, is set forth below. All dollar amounts are in thousands.

		December 31, 2019				Percentage				December 31, 2018				Percentage
Fixed-rate debt ⁽¹⁾		$	1,297,467				98	%		$	1,046,273				74	%
Variable-rate debt			28,400				2	%			371,300				26	%
Total		$	1,325,867							$	1,417,573
Weighted-average interest rate of debt			3.59	%							3.74	%

(1)

Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. Due to interest rate swaps expiring in May 2020, partially offset by other interest rate swaps becoming effective during the first half of 2020, $172.5 million of fixed-rate debt as of December 31, 2019 will become variable-rate debt in May 2020. See Note 5 for more information on the interest rate swap agreements.

Credit Facilities

$850 Million Credit Facility

Prior to the Company’s refinancing of the facility in July 2018, the Company utilized an unsecured “$965 million credit facility” comprised of (i) a $540 million revolving credit facility with a maturity date of May 18, 2019 and (ii) a $425 million term loan facility with a maturity date of May 18, 2020, consisting of three term loans, all funded during 2015. On July 27, 2018, the Company entered into an amendment and restatement of its $965 million credit facility, which was repaid at closing, reducing the borrowing capacity to $850 million, reducing the annual interest rate and extending the maturity dates (the “$850 million credit facility”). The $850 million credit facility is comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 and (ii) a $425 million term loan facility consisting of two term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024, both funded at closing (the “$425 million term loan facility”). At closing, the Company repaid the $425 million outstanding under the term loans of the $965 million credit facility with the proceeds from the $425 million term loan facility under the $850 million credit facility and borrowed approximately $196 million under the $425 million revolving credit facility to repay the outstanding balance of the extinguished $540 million revolving credit facility and to pay closing costs. Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $850 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

Prior to the Company’s refinancing of the facility in August 2018, the Company utilized an unsecured $150 million term loan facility (the “$150 million term loan facility”) consisting of a $50 million term loan with a maturity date of April 8, 2021 and a $100 million term loan with a maturity date of April 8, 2023, both funded during 2016. On August 2, 2018, the Company entered into an amendment and restatement of its $150 million term loan facility, which was repaid at closing, increasing the borrowing capacity to $225 million, reducing the annual interest rate and extending the maturity dates (the “$225 million term loan facility”). The $225 million term loan facility is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded at closing, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded at closing and the remaining $75 million was funded on January 29, 2019. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a

margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

2017 $85 Million Term Loan Facility

On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024, consisting of one term loan funded at closing (the “2017 $85 million term loan facility”). Net proceeds from the 2017 $85 million term loan facility were used to pay down borrowings on the Company’s revolving credit facility. Although no material terms were changed, the credit agreement was amended and restated in August 2018 as a result of the refinancings noted above. The amended and restated credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the 2017 $85 million term loan facility are due monthly. In July 2019, the Company entered into an amendment of the $85 million term loan to reduce the interest rate from 1.80% - 2.60% to 1.30% - 2.10%, plus the annual rate of the one-month LIBOR, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement, for the remainder of the term.

2019 $85 Million Term Loan Facility

On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of one term loan funded at closing (the “2019 $85 million term loan facility” and, together with the $850 million credit facility, the $225 million term loan facility and the 2017 $85 million term loan facility, the “credit facilities”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings on the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

As of December 31, 2019 and 2018, the details of the Company’s credit facilities were as set forth below. All dollar amounts are in thousands.

					Outstanding Balance
	Interest Rate		Maturity Date		December 31, 2019				December 31, 2018
Revolving credit facility ⁽¹⁾	LIBOR + 1.40% - 2.25%		7/27/2022		$	50,900			$	268,800

Term loans
$200 million term loan	LIBOR + 1.35% - 2.20%		7/27/2023			200,000				200,000
$225 million term loan	LIBOR + 1.35% - 2.20%		1/31/2024			225,000				225,000
$50 million term loan	LIBOR + 1.35% - 2.20%		8/2/2023			50,000				50,000
$175 million term loan	LIBOR + 1.65% - 2.50%		8/2/2025			175,000				100,000
2017 $85 million term loan	LIBOR + 1.30% - 2.10% ⁽²⁾		7/25/2024			85,000				85,000
2019 $85 million term loan	LIBOR + 1.70% - 2.55%		12/31/2029			85,000				-
Term loans at stated value						820,000				660,000
Unamortized debt issuance costs						(6,066	)			(6,618	)
Term loans, net						813,934				653,382

Revolving credit facility and term loans, net⁽¹⁾					$	864,834			$	922,182
Weighted-average interest rate⁽³⁾						3.14	%			3.37	%

(1)	Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $2.6 million and $3.6 million as of December 31, 2019 and 2018, respectively, which are included in other assets, net in the Company’s consolidated balance sheets.
(2)	The $85 million term loan was amended in July 2019 to reduce the interest rate margin range. Prior to the amendment, the interest rate was LIBOR + 1.80% - 2.60%.
(3)	Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $842.5 million and $557.5 million of the outstanding variable-rate debt as of December 31, 2019 and 2018, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at December 31, 2019 and 2018 was 1.76% and 2.50%, respectively.

The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments. The credit agreements contain the following financial and restrictive covenants (capitalized terms are defined in the credit agreements).

●

A ratio of Consolidated Total Indebtedness to Consolidated EBITDA of not more than 6.50 to 1.00 (subject to a higher amount in certain circumstances);

●

A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets of not more than 45%;

●

A minimum Consolidated Tangible Net Worth of approximately $3.2 billion (plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, subject to adjustment);

●

A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges of not less than 1.50 to 1.00 for the trailing four full quarters;

●

A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness of not less than 2.00 to 1.00 for the trailing four full quarters;

●

A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value of not more than 60% (subject to a higher level in certain circumstances); and

●

A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets of not more than 10%.

The Company was in compliance with the applicable covenants at December 31, 2019.

Mortgage Debt

As of December 31, 2019, the Company had approximately $455.0 million in outstanding mortgage debt secured by 29 properties, with maturity dates ranging from June 2020 to January 2038, stated interest rates ranging from 3.55% to 6.25% and effective interest rates ranging from 3.55% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of December 31, 2019 and 2018 for each of the Company’s debt obligations. All dollar amounts are in thousands.

Location		Brand		Interest Rate (1)				Loan Assumption or Origination Date		Maturity Date			Principal Assumed or Originated				Outstanding balance as of December 31, 2019				Outstanding balance as of December 31, 2018
Syracuse, NY		Courtyard			4.75	%		10/16/2015			(2)		$	11,199			$	-			$	10,357
Syracuse, NY		Residence Inn			4.75	%		10/16/2015			(2)			11,199				-				10,357
San Juan Capistrano, CA		Residence Inn			4.15	%		9/1/2016		6/1/2020				16,210				15,073				15,431
Colorado Springs, CO		Hampton			6.25	%		9/1/2016		7/6/2021				7,923				7,471				7,617
Franklin, TN		Courtyard			6.25	%		9/1/2016		8/6/2021				14,679				13,847				14,115
Franklin, TN		Residence Inn			6.25	%		9/1/2016		8/6/2021				14,679				13,847				14,115
Grapevine, TX		Hilton Garden Inn			4.89	%		8/29/2012		9/1/2022				11,810				9,775				10,101
Collegeville/Philadelphia, PA		Courtyard			4.89	%		8/30/2012		9/1/2022				12,650				10,471				10,820
Hattiesburg, MS		Courtyard			5.00	%		3/1/2014		9/1/2022				5,732				4,897				5,058
Rancho Bernardo/San Diego, CA		Courtyard			5.00	%		3/1/2014		9/1/2022				15,060				12,866				13,289
Kirkland, WA		Courtyard			5.00	%		3/1/2014		9/1/2022				12,145				10,376				10,717
Seattle, WA		Residence Inn			4.96	%		3/1/2014		9/1/2022				28,269				24,130				24,928
Anchorage, AK		Embassy Suites			4.97	%		9/13/2012		10/1/2022				23,230				19,324				19,957
Somerset, NJ		Courtyard			4.73	%		3/1/2014		10/6/2022				8,750				7,441				7,692
Tukwila, WA		Homewood Suites			4.73	%		3/1/2014		10/6/2022				9,431				8,020				8,291
Prattville, AL		Courtyard			4.12	%		3/1/2014		2/6/2023				6,596				5,558				5,754
Huntsville, AL		Homewood Suites			4.12	%		3/1/2014		2/6/2023				8,306				6,999				7,246

Location		Brand		Interest Rate (1)				Loan Assumption or Origination Date		Maturity Date			Principal Assumed or Originated				Outstanding balance as of December 31, 2019				Outstanding balance as of December 31, 2018
San Diego, CA		Residence Inn			3.97	%		3/1/2014		3/6/2023			$	18,600			$	15,640			$	16,198
Miami, FL		Homewood Suites			4.02	%		3/1/2014		4/1/2023	-			16,677				14,051				14,547
New Orleans, LA		Homewood Suites			4.36	%		7/17/2014		8/11/2024				27,000				23,513				24,232
Westford, MA		Residence Inn			4.28	%		3/18/2015		4/11/2025				10,000				8,876				9,137
Denver, CO		Hilton Garden Inn			4.46	%		9/1/2016		6/11/2025				34,118				31,311				32,198
Oceanside, CA		Courtyard			4.28	%		9/1/2016		10/1/2025				13,655				12,812				13,077
Omaha, NE		Hilton Garden Inn			4.28	%		9/1/2016		10/1/2025				22,682				21,280				21,722
Boise, ID		Hampton			4.37	%		5/26/2016		6/11/2026				24,000				22,588				23,015
Burbank, CA		Courtyard			3.55	%		11/3/2016		12/1/2026				25,564				23,552				24,247
San Diego, CA		Courtyard			3.55	%		11/3/2016		12/1/2026				25,473				23,468				24,161
San Diego, CA		Hampton			3.55	%		11/3/2016		12/1/2026				18,963				17,471				17,986
Burbank, CA		SpringHill Suites			3.94	%		3/9/2018		4/1/2028				28,470				27,317				28,018
Santa Ana, CA		Courtyard			3.94	%		3/9/2018		4/1/2028				15,530				14,901				15,283
San Jose, CA		Homewood Suites			4.22	%		12/22/2017		1/1/2038				30,000				28,092				29,107
													$	528,600				454,967				488,773
Unamortized fair value adjustment of assumed debt																		2,526				3,428
Unamortized debt issuance costs																		(1,920	)			(2,141	)
Total																	$	455,573			$	490,060

(1)	Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan.
(2)	Loans were repaid in full in May 2019.

The total fair value, net premium adjustment for all of the Company’s debt assumptions is being amortized as a reduction to interest expense over the remaining term of the respective mortgages using a method approximating the effective interest rate method, and totaled approximately $0.9 million for each of the three years ended December 31, 2019.

Debt issuance costs related to the assumption or origination of debt are amortized over the period to maturity of the applicable debt instrument, as an addition to interest expense, and totaled approximately $2.8 million for each of the three years ended December 31, 2019.

The Company’s interest expense in 2019, 2018 and 2017 is net of interest capitalized in conjunction with hotel renovations totaling approximately $1.3 million, $1.0 million and $1.3 million, respectively.