Debt

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Debt

4. Debt 

Summary 

As of September 30, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

	September 30, 2021		December 31, 2020
Revolving credit facility	$	-	$	105,800
Term loans and senior notes, net		864,705		864,225
Mortgage debt, net		501,916		512,546
Debt, net	$	1,366,621	$	1,482,571

The aggregate amounts of principal payable under the Company’s total debt obligations as of September 30, 2021 (including the revolving credit facility, term loans, senior notes and mortgage debt), for each of the next five fiscal years and thereafter are as follows (in thousands):

2021 (October - December)	$	4,375
2022		165,831
2023		296,213
2024		338,597
2025		245,140
Thereafter		322,265
		1,372,421
Unamortized fair value adjustment of assumed debt		1,070
Unamortized debt issuance costs		(6,870	)
Total	$	1,366,621

The Company uses interest rate swaps to manage its interest rate risk 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 September 30, 2021 and December 31, 2020, is set forth below. All dollar amounts are in thousands.

	September 30, 2021			Percentage			December 31, 2020			Percentage
Fixed-rate debt (1)	$	1,322,421			96	%	$	1,287,219			86	%
Variable-rate debt		50,000			4	%		201,351			14	%
Total	$	1,372,421					$	1,488,570
Weighted-average interest rate of debt		3.47	%					3.86	%

(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. See Note 5 for more information on the interest rate swap agreements.

Credit Facilities

Credit Facilities Amendments

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding the Company’s investing and financing activities that were applicable during a specified waiver period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company, that applied during such testing suspension period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities (the “March 2021 amendments”) to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date).

In addition to the modifications and restrictions imposed during the Extended Covenant Waiver Period, the amendments modified the calculation of the existing financial covenants for the first three quarterly calculations subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts based on the period beginning with the first fiscal quarter upon exiting the Extended Covenant Waiver Period through the most recently ended fiscal quarter. The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

● Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

● Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

● Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

● Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.

In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021 pursuant to the terms of each of its unsecured credit facilities. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021.

As of September 30, 2021, the Company met the applicable financial maintenance covenants based on the annualized results of the six months ended September 30, 2021 at the levels required for the second fiscal quarter tested upon exiting the Extended Covenant Waiver Period. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has elected to exit.

$850 Million Credit Facility

The Company utilizes an unsecured “$850 million credit facility” comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the “Revolving Credit Facility”) 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 (the “$425 million term loan facility”). 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 if certain criteria are met at the time of extension. 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. As of September 30, 2021, the Company had availability of $425 million under the revolving credit facility. 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

The Company has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, and (ii) a $175 million term loan with a maturity date of August 2, 2025. 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 that was funded at closing (the “2017 $85 million term loan facility”). The credit agreement, as amended and restated in August 2018, 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 2017 $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 1.30% to 2.10%, 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”). 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, 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.  

$50 Million Senior Notes Facility

On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility and the 2019 $85 million term loan facility, each as amended, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility were available to provide funding for general corporate purposes. The note 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, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the facility. 

As of September 30, 2021 and December 31, 2020, the details of the Company’s unsecured credit facilities were as set forth below. All dollar amounts are in thousands.

			Outstanding Balance
	Interest Rate (1)	Maturity Date	September 30, 2021			December 31, 2020
Revolving credit facility (2)	LIBOR + 1.40% - 2.25%	7/27/2022 (4)	$	-		$	105,800
Term loans and senior notes
$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			175,000
2017 $85 million term loan	LIBOR + 1.30% - 2.10%	7/25/2024		85,000			85,000
2019 $85 million term loan	LIBOR + 1.70% - 2.55%	12/31/2029		85,000			85,000
$50 million senior notes	3.60% - 4.35%	3/31/2030		50,000			50,000
Term loans and senior notes at stated    value				870,000			870,000
Unamortized debt issuance costs				(5,295	)		(5,775	)
Term loans and senior notes, net				864,705			864,225
Credit facilities, net (2)			$	864,705		$	970,025
Weighted-average interest rate (3)				3.07	%		3.64	%

(1) Interest rates on all of the unsecured credit facilities increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period from March 1, 2021 through July 28, 2021.

(2) Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $1.4 million and $2.1 million as of September 30, 2021 and December 31, 2020, respectively, which are included in other assets, net in the Company's consolidated balance sheets.

(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 $770.0 million and $745.0 million of the outstanding variable-rate debt as of September 30, 2021 and December 31, 2020, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at September 30, 2021 and December 31, 2020 was 0.08% and 0.14%, respectively.

(4)  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, to July 27, 2023, if certain criteria are met at the time of extension.

Mortgage Debt

As of September 30, 2021, the Company had approximately $502.4 million in outstanding mortgage debt secured by 28 properties with maturity dates ranging from August 2022 to May 2038, stated interest rates ranging from 3.40% to 5.00% and effective interest rates ranging from 3.40% 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. As a result of the effects of the COVID-19 pandemic on certain hotels, the associated lenders granted temporary deferrals of principal and interest payments during 2020, however all payments resumed as of December 31, 2020. 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 September 30, 2021 and December 31, 2020 for each of the Company’s mortgage 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 September 30, 2021			Outstanding balance as of December 31, 2020
Cape Canaveral, FL	Hampton		(2	)	4/30/2020	(3)	$	10,852	$	-		$	10,275
Cape Canaveral, FL	Home2 Suites		(2	)	4/30/2020	(3)		10,852		-			10,275
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	(4)		7,923		-			7,317
Franklin, TN	Courtyard		6.25	%	9/1/2016	(4)		14,679		-			13,563
Franklin, TN	Residence Inn		6.25	%	9/1/2016	(4)		14,679		-			13,563
Seattle, WA	(5)		4.00	%	8/16/2021	8/16/2022		56,000		56,000			-
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022		11,810		9,167			9,434
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022		12,650		9,818			10,105
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022		5,732		4,596			4,729
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022		12,145		9,737			10,018
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022		15,060		12,074			12,422
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022		28,269		22,638			23,294
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022		23,230		18,139			18,660
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022		8,750		6,973			7,179
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022		9,431		7,516			7,737
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023		8,306		6,542			6,742
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023		6,596		5,195			5,354
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023		18,600		14,610			15,061
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023		16,677		13,136			13,537
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024		27,000		22,181			22,766
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025		10,000		8,393			8,605
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025		34,118		29,663			30,387
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025		13,655		12,391			12,605
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025		22,682		20,581			20,936
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026		24,000		21,799			22,146
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026		25,564		22,482			23,315
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026		25,473		22,402			23,232
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026		18,963		16,677			17,295
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028		28,470		26,264			27,078
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028		15,530		14,326			14,770
Richmond, VA	Courtyard		3.40	%	2/12/2020	3/11/2030		14,950		14,521			14,739
Richmond, VA	Residence Inn		3.40	%	2/12/2020	3/11/2030		14,950		14,521			14,739
Portland, ME	Residence Inn		3.43	%	3/2/2020	4/1/2030		33,500		33,500			33,500
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	5/1/2038		30,000		26,579			27,392
							$	631,096		502,421			512,770
Unamortized fair value adjustment of    assumed debt										1,070			1,624
Unamortized debt issuance costs										(1,575	)		(1,848	)
Total									$	501,916		$	512,546

(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) Interest rate was variable based on one-month LIBOR plus 3.00%. As of April 12, 2021, the date the loan was fully repaid, the interest rate was 3.11%. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings.

(3) Loan was repaid in full on April 12, 2021.

(4) Loan was repaid in full on June 4, 2021.

(5) On August 16, 2021, the Company acquired the fee interest in the land at the Seattle, Washington Residence Inn, previously held under a finance ground lease, for a purchase price of $80.0 million, consisting of a $24.0 million cash payment and a one-year note payable to the seller for $56.0 million.