Debt

Senior Unsecured Revolving Credit Facilities

The Company's $750.0 million unsecured credit facility provides for a $450.0 million unsecured revolving credit facility and a $300.0 million unsecured term loan (the "First Term Loan"). The revolving credit facility matures in January 2019 with options to extend the maturity date to January 2020. The First Term Loan matures in January 2020. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement to up to $1.0 billion, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.55% to 2.30%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.20% or 0.30% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement that governs the revolving credit facility and the term loan facility contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value.

As of June 30, 2017 and December 31, 2016, the Company had $43.0 million and $82.0 million, respectively, in outstanding borrowings under the revolving credit facility. As of June 30, 2017, the Company had $407.0 million borrowing capacity remaining under the revolving credit facility. As of June 30, 2017, the Company was in compliance with the credit agreement debt covenants. For the three and six months ended June 30, 2017, the Company incurred unused commitment fees of $0.1 million and $0.4 million, respectively. For the three and six months ended June 30, 2016, the Company incurred unused commitment fees of $0.2 million and $0.4 million, respectively.

On May 17, 2017, PHL entered into a $10.0 million unsecured revolving credit facility ("PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. The PHL Credit Facility matures in May 2018. Borrowings on the PHL Credit Facility bear interest at LIBOR plus 1.55% to 2.30%, depending on the Company's leverage ratio. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Company's amended and restated credit agreement. Additionally, PHL is required to pay an unused commitment fee at an annual rate of 0.20% or 0.30% of the unused portion of the PHL Credit Facility.

As of June 30, 2017 and December 31, 2016, PHL had no borrowings under its revolving credit facility. As of June 30, 2017, the Company had $10.0 million borrowing capacity remaining under the PHL Credit Facility.

Unsecured Term Loan Facilities

As of June 30, 2017, the Company had $300.0 million outstanding under the First Term Loan which matures in January 2020. This term loan facility bears interest at a variable rate of LIBOR plus 1.50% to 2.25%, depending on the Company's leverage ratio.

On April 13, 2015, the Company entered into a second unsecured term loan facility (the "Second Term Loan"). The Second Term Loan has a $100.0 million capacity, which may be increased to up to $200.0 million, subject to lender approval, and matures in April 2022. On January 5, 2016, the Company exercised its accordion option to increase the borrowing capacity under the Second Term Loan to $175.0 million. As of June 30, 2017, the Company had $175.0 million outstanding under the Second Term Loan. The Second Term Loan bears interest at a variable rate of LIBOR plus 1.70% to 2.55%, depending on the Company's leverage ratio.

On June 10, 2015, the Company entered into a third unsecured term loan facility (the "Third Term Loan"). The Third Term Loan has a $125.0 million capacity, which may be increased up to $250.0 million, subject to lender approval, and matures in January 2021. On January 5, 2016, the Company exercised its accordion option to increase the borrowing capacity under the Third Term Loan to $200.0 million. As of June 30, 2017, the Company had $200.0 million outstanding under the Third Term Loan. This Third Term Loan bears interest at a variable rate of LIBOR plus 1.45% to 2.20%, depending on the Company's leverage ratio.

As of June 30, 2017 and December 31, 2016, the Company had $675.0 million and $675.0 million, respectively, in aggregate outstanding borrowings under the unsecured term loan facilities. Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the amended and restated credit agreement. As of June 30, 2017, the Company was in compliance with all debt covenants of its term loan facilities. The Company has entered into interest rate swaps to effectively fix the LIBOR rates for all of its unsecured term loan facilities, except for $75.0 million on the Second Term Loan (see “Derivative and Hedging Activities” below).

Senior Unsecured Notes

On November 12, 2015, the Company issued $60.0 million of senior unsecured notes (the "Series A Notes") bearing a fixed interest rate of 4.70% per annum and maturing in December 2023. On November 12, 2015, the Company issued $40.0 million of senior unsecured notes (the "Series B Notes") bearing a fixed interest rate of 4.93% per annum and maturing in December 2025. The Series A Notes and the Series B Notes are subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility and the term loan facility. As of June 30, 2017, the Company was in compliance with all such debt covenants.

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. 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 other expense in the consolidated statements of operations and comprehensive income.

As of June 30, 2017, the Company had interest rate swaps with an aggregate notional amount of $300.0 million to hedge the variable interest rate on the First Term Loan and, as a result, the First Term Loan had a weighted-average effective interest rate of 2.93% through July 13, 2017 and a weighted-average effective interest rate of 3.51% from July 13, 2017 through January 15, 2020, based on the Company’s leverage ratio at June 30, 2017.

The Company entered into interest rate swap agreements with an aggregate notional amount of $100.0 million to effectively fix the LIBOR rate for the entire duration of the Second Term Loan, and, as a result, the Second Term Loan had a weighted-average effective interest rate of 3.46%, based on the Company’s leverage ratio at June 30, 2017. The remaining $75.0 million borrowing under the Second Term Loan remains floating at a variable rate of LIBOR plus 1.70% to 2.55%, depending on the Company's leverage ratio.

The Company entered into interest rate swap agreements with an aggregate notional amount of $200.0 million to effectively fix the LIBOR rate for the entire duration of the Third Term Loan, and, as a result, the Third Term Loan had a weighted-average effective interest rate of 3.21%, based on the Company’s leverage ratio at June 30, 2017.

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 (Overnight Index Swap 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 incorporates these counterparty credit risks in its fair value measurements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.

As of June 30, 2017, the Company's derivative instruments were in both asset and liability positions, with aggregate asset and liability fair values of $1.3 million and $2.5 million, respectively, in the accompanying consolidated balance sheets. For the three and six months ended June 30, 2017, there was $(1.3) million and $0.8 million in unrealized gain (loss), respectively, recorded in accumulated other comprehensive income. For the three and six months ended June 30, 2016, there was $(4.6) million and $(16.1) million unrealized gain (loss), respectively, recorded in accumulated other comprehensive income. For the three and six months ended June 30, 2017, the Company recorded a gain (loss) of $(0.1) million and zero, respectively, for the ineffective portion of the change in fair values of the interest rate swaps. For the three and six months ended June 30, 2016, the Company recorded a gain (loss) of $(0.1) million and $(1.9) million, respectively, for the ineffective portion of the change in fair values of the interest rate swaps. For the three and six months ended June 30, 2017, the Company reclassified $0.7 million and $1.8 million, respectively, from accumulated other comprehensive income (loss) to interest expense. For the three and six months ended June 30, 2016, the Company reclassified $1.6 million and $3.2 million, respectively, from accumulated other comprehensive income (loss) to interest expense. The Company expects approximately $2.5 million will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months.

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 March 1, 2017, the Company repaid the $44.1 million mortgage loan on the Sofitel Philadelphia, without penalty, using proceeds from the senior unsecured revolving credit facility.

On June 1, 2017 , the Company repaid the $25.5 million mortgage loan on the Hotel Zelos San Francisco, without penalty, using proceeds from the senior unsecured revolving credit facility.

Debt Summary

Debt as of June 30, 2017 and December 31, 2016 consisted of the following (dollars in thousands):



			Balance Outstanding as of
	Interest Rate	Maturity Date	June 30, 2017			December 31, 2016
Revolving credit facilities
Senior unsecured revolving credit facility	Floating ⁽¹⁾	January 2019	$	43,000		$	82,000
PHL unsecured revolving credit facility	Floating ⁽²⁾	May 2018	—			—
Total revolving credit facilities			$	43,000		$	82,000

Term loans
First Term Loan	Floating ⁽³⁾	January 2020	300,000			300,000
Second Term Loan	Floating ⁽³⁾	April 2022	175,000			175,000
Third Term Loan	Floating ⁽³⁾	January 2021	200,000			200,000
Total term loans at stated value			675,000			675,000
Deferred financing costs, net			(2,826		)	(3,207		)
Total term loans			$	672,174		$	671,793

Senior unsecured notes
Series A Notes	4.70%	December 2023	60,000			60,000
Series B Notes	4.93%	December 2025	40,000			40,000
Total senior unsecured notes at stated value			100,000			100,000
Deferred financing costs, net			(505		)	(540		)
Total senior unsecured notes			$	99,495		$	99,460

Mortgage loans
Sofitel Philadelphia	3.90%	June 2017	—			44,320
Hotel Zelos San Francisco	5.94%	September 2017	—			25,718
The Westin San Diego Gaslamp Quarter	3.69%	January 2020	71,720			72,852
Mortgage loans at stated value			71,720			142,890
Mortgage loan premiums and deferred financing costs⁽⁴⁾			(136		)	108
Total mortgage loans			$	71,584		$	142,998
Total debt			$	886,253		$	996,251

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⁽¹⁾Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin. The Company has two six-month extension options.

⁽²⁾Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.

⁽³⁾Borrowings under the term loan facilities bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin. The Company entered into interest rate swaps to effectively fix the interest rate for the First Term Loan, a portion of the Second Term Loan and the Third Term Loan. At June 30, 2017 and December 31, 2016, the Company had interest rate swaps on the full amounts outstanding, except for $75.0 million on the Second Term Loan. See "Derivative and Hedging Activities" above.

⁽⁴⁾Loan premium on assumed mortgage loan recorded in purchase accounting for the Hotel Zelos San Francisco.

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 fixed rate debt (unsecured senior notes and mortgage loans) as of June 30, 2017 and December 31, 2016 was $170.8 million and $242.9 million, respectively.

The Company was in compliance with all debt covenants as of June 30, 2017.