Debt

Senior Unsecured Revolving Credit Facility

On July 13, 2012, the Company amended and restated the credit agreement that governs the Company's senior unsecured revolving credit facility and the Company's unsecured term loan to increase the aggregate borrowing capacity to $300.0 million. The credit agreement provides for a $200.0 million unsecured revolving credit facility and a $100.0 million unsecured term loan. The revolving credit facility matures in July 2016, and the Company has a one-year extension option. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement up to $600.0 million, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.75% to 2.50%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.25% or 0.35% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a maximum debt service coverage ratio, a minimum fixed charge coverage ratio, and a minimum net worth. As of September 30, 2012 and December 31, 2011, the Company had no outstanding borrowings under the revolving credit facility. As of September 30, 2012, the Company was in compliance with the credit agreement debt covenants. For the three and nine months ended September 30, 2012, the Company incurred unused commitment fees of $0.2 million and $0.7 million, respectively. For the three and nine months ended September 30, 2011, the Company incurred unused commitment fees of $0.2 million and $0.6 million, respectively.

Term Loan

On August 13, 2012, the Company drew the entire $100.0 million unsecured term loan provided for under its amended senior credit agreement. The five-year term loan matures in July 2017 and bears interest at a variable rate, but was swapped to an effective fixed interest rate for the full five-year term (see “Derivative and Hedging Activities” below).

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. Effective August 13, 2012, the Company entered into three interest rate swap agreements with an aggregate notional amount of $100.0 million for the term loan's full five-year term, resulting in an effective fixed interest rate of 2.55% at the Company's current leverage ratio (as defined in the agreement). The Company has designated its pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

The Company records all derivative instruments at fair value in the consolidated balance sheets. Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.

As of September 30, 2012, the Company's derivative instruments are in a liability position, with an aggregate fair value of $0.4 million which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. The Company had an interest rate cap associated with the mortgage debt on the Sofitel Philadelphia hotel at December 31, 2011. The estimated fair value of the interest rate cap was immaterial. As of September 30, 2012, there was $0.4 million in unrealized loss included in accumulated other comprehensive loss. During the three and nine months ended September 30, 2012, the Company reclassified $63 thousand from accumulated other comprehensive income to interest expense.

Mortgage Debt

Each of the Company’s mortgage loans is secured by a first mortgage lien or by leasehold interests under the ground lease on the underlying property. The mortgages are non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.

On January 11, 2012, the Company obtained a $46.0 million first mortgage loan secured by the Company's leasehold interest under the ground lease on the Monaco Washington DC hotel. A portion of the proceeds from this loan was used to repay the existing $35.0 million mortgage on this property. The loan has a term of five years, bears interest at 4.36% and requires monthly principal and interest payments of $0.2 million.

On January 11, 2012, the Company repaid the $42.0 million loan on the Argonaut Hotel with cash on hand and borrowings from the Company's senior unsecured revolving credit facility. On February 15, 2012, the Company obtained a $47.0 million first-mortgage loan secured by the Company's leasehold interest under the ground lease on the Argonaut Hotel. The loan has a term of five years, bears interest at 4.25% and requires monthly principal and interest payments of $0.3 million.

On February 1, 2012, the Company repaid the $56.1 million first mortgage loan on the Sofitel Philadelphia hotel. On May 18, 2012, the Company obtained a $50.0 million first mortgage loan on the Sofitel Philadelphia hotel. The loan has a term of five years, bears interest at 3.90% and requires monthly principal and interest payments of $0.3 million.

Mortgage debt as of September 30, 2012 and December 31, 2011 consisted of the following (dollars in thousands):



			Balance Outstanding as of
	Interest Rate	Maturity Date	September 30, 2012		December 31, 2011
InterContinental Buckhead	4.88%	January 2016	$	51,225	$	51,805
Skamania Lodge	5.44%	February 2016	30,359		30,664
DoubleTree by Hilton Bethesda-Washington DC	5.28%	February 2016	35,724		36,000
Monaco Washington DC	4.36%	February 2017	45,560		35,000
Argonaut Hotel	4.25%	March 2017	46,489		42,000
Sofitel Philadelphia	3.90%	June 2017	49,714		56,070
			$	259,071	$	251,539

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within level 2 of the fair value hierarchy. The estimated fair value of the Company’s mortgage debt as of September 30, 2012 and December 31, 2011 was $260.0 million and $251.2 million, respectively.

The Company was in compliance with all debt covenants as of September 30, 2012.

Future scheduled debt principal payments for the Company's mortgage debt and term loan for the twelve months ending September 30, are as follows (in thousands):



2013	$	4,791
2014	5,014
2015	5,248
2016	115,220
2017	228,798
	$	359,071