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Debt
 12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Debt Debt
On June 29, 2020, the Company amended its credit agreements and related documents governing the unsecured revolving credit facilities, term loan agreements and senior notes which:
•waived existing financial covenants through the end of the first quarter of 2021 and provided substantially less restrictive covenants through the end of the second quarter of 2022 ("waiver period");
•extended the maturity of $242.6 million of the Company’s Sixth Term Loan 2021 tranche of $300.0 million from November 2021 to November 2022;
•fixed the spread at the highest threshold through the end of the waiver period;
•increased the LIBOR floor from 0% to 0.25% for any debt not designated by the Company as being covered by an interest rate swap;
•requires assets to be pledged as security, in the future, under certain circumstances;
•preserved the Company's ability to pay quarterly preferred equity dividend payments and a $0.01 per share quarterly common dividend (or higher if required to maintain REIT status) during the waiver period so long as the Company is in compliance with all loan agreements;
•provided the Company flexibility to complete new acquisitions and other investments during the waiver period;
•permit the Company to complete up to $90.0 million of capital improvements and redevelopment projects through the end of the waiver period; and
•provide limitations during the waiver period on common share repurchases and certain required prepayments following capital issuances or property dispositions.
On February 18, 2021, the Company further amended its credit agreements and related documents governing the unsecured revolving credit facilities, term loan agreements and senior notes, which:
•extended the waiver period for financial covenants through the end of the first quarter of 2022 except for the minimum fixed charge coverage and the minimum unsecured interest coverage ratio which are extended through December 31, 2021. The covenants are substantially less restrictive through a phase-in period;
•extended the majority of the remaining balance of the Company's Sixth Term Loan 2021 tranche, from November 2021 to November 2022;
•increased the spread on the unsecured revolving credit facility to LIBOR plus 2.4% and unsecured term loans to LIBOR plus 2.35%;
•increased the fixed rate on the Senior Unsecured Notes by 0.45% during the extended waiver period; and
•extends other terms through the extended waiver period.
The Company's debt consisted of the following as of December 31, 2020 and 2019 (dollars in thousands):
   Balance Outstanding as of
 Interest RateMaturity DateDecember 31, 2020December 31, 2019
Revolving credit facilities
Senior unsecured credit facility
Floating (1)
January 2022$40,000 $165,000 
PHL unsecured credit facility
Floating (2)
January 2022— — 
Total revolving credit facilities$40,000 $165,000 
Unsecured term loans
First Term Loan
Floating (3)
January 2023300,000 300,000 
Second Term Loan
Floating (3)
April 202265,000 65,000 
Fourth Term Loan
Floating (3)
October 2024110,000 110,000 
Sixth Term Loan
Tranche 2021
Floating (3)
November 2021
(4)
40,966 300,000 
Tranche 2021 Extended
Floating (3)
November 2022173,034 — 
Tranche 2022
Floating (3)
November 2022286,000 400,000 
Tranche 2023
Floating (3)
November 2023400,000 400,000 
Tranche 2024
Floating (3)
January 2024400,000 400,000 
Total Sixth Term Loan1,300,000 1,500,000 
Total term loans at stated value1,775,000 1,975,000 
Deferred financing costs, net(8,455)(10,343)
Total term loans$1,766,545 $1,964,657 
Convertible senior notes
   Convertible senior notes1.75%December 2026500,000 — 
   Debt discount, net(113,099)— 
   Deferred financing costs, net(12,568)— 
Total convertible senior notes$374,333 $— 
Senior unsecured notes
Series A Notes4.70%December 202360,000 60,000 
Series B Notes4.93%December 202540,000 40,000 
Total senior unsecured notes at stated value100,000 100,000 
Deferred financing costs, net(407)(437)
Total senior unsecured notes$99,593 $99,563 
Total debt$2,280,471 $2,229,220 
________________________
(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.
(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. As of December 31, 2020, $1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.19%, after taking into account interest rate swap agreements, and $345.0 million bore a weighted-average floating interest rate of 2.46%. As of December 31, 2019, $1.6 billion of the borrowings under the term loan facilities bore a weighted-average fixed interest rate of 3.43%, after taking into account interest rate swap agreements, and $345.0 million bore a weighted-average floating interest rate of 3.32%.
(4) In February 2021, we repaid $12.8 million of the Sixth Term Loan Tranche 2021 and extended the majority of the remaining balance to November 2022.
Unsecured Revolving Credit Facilities
The Company has a $650.0 million senior unsecured revolving credit facility maturing in January 2022, with options to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee. As of December 31, 2020, the Company had $40.0 million of outstanding borrowings, $6.8 million of outstanding letters of credit and borrowing capacity of $603.2 million remaining on its senior unsecured credit facility. Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount, or spread. The Company has the ability to further increase the aggregate borrowing capacity under the credit agreement to up to $1.3 billion, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.45% to 2.25%, depending on the Company’s leverage ratio. As a result of the amendments to the credit agreements and related documentation described above, the spread on the borrowings is fixed at 2.25% during the waiver period. 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 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.
The Company also has a $25.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in January 2022. Borrowings on the PHL Credit Facility bear interest at LIBOR plus 1.45% to 2.25%, depending on the Company's leverage ratio. As a result of the amendments described above, the spread of the borrowings is fixed at 2.25% during the waiver period. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Company's credit agreement that governs the Company's senior unsecured revolving credit facility. As of December 31, 2020, the Company had no borrowings under the PHL Credit Facility and had $25.0 million borrowing capacity remaining available under the PHL Credit Facility.
Under the terms of the credit agreement for the unsecured revolving credit facility, one or more standby letters of credit, up to a maximum aggregate outstanding balance of $30.0 million, may be issued on behalf of the Company by the lenders under the unsecured revolving credit facility.  The Company will incur a fee that shall be agreed upon with the issuing bank.  Any outstanding standby letters of credit reduce the available borrowings on the senior unsecured revolving credit facility by a corresponding amount. Standby letters of credit of $6.8 million and $2.8 million were outstanding as of December 31, 2020 and 2019, respectively.
As of December 31, 2020, the Company was in compliance with all debt covenants of the credit agreements that govern the unsecured revolving credit facilities.
Unsecured Term Loan Facilities
The Company has senior unsecured term loans with different maturities. Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on the Company's leverage ratio. Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility. Upon completion of the convertible notes offering in December, the Company repaid $200.0 million of the Company's sixth term loans. As of December 31, 2020, the Company was in compliance with all debt covenants of its term loan facilities. The Company entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loan facilities, see Derivative and Hedging Activities below.
Convertible Senior Notes
In December 2020, the Company issued $500.0 million aggregate principal amount of 1.75% Convertible Senior Notes maturing in December 2026 (the "Convertible Notes"). The Convertible Notes are governed by an indenture (the “Base Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the offering of the Convertible Notes were approximately $487.3 million after deducting the underwriting fees and other expenses paid by the Company.
The Convertible Notes bear interest at a rate of 1.75% per annum, payable semi-annually in arrears on June 15th and December 15th of each year, beginning on June 15, 2021. The Convertible Notes will mature on December 15, 2026. The Company recorded coupon interest expense of $0.4 million for the year ended December 31, 2020.
The Company separated the Convertible Notes into liability and equity components. The initial carrying amount of the liability component was $386.1 million and was calculated using a discount rate of 6.25%. The discount rate was based on the terms of debt instruments that were similar to the Convertible Notes. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the principal amount of the
Convertible Notes, or $113.9 million. The amount recorded in equity is not subject to remeasurement or amortization. The $113.9 million also represents the initial discount recorded on the Convertible Notes. The discount is accreted to interest expense using the effective interest rate method over the contractual term of the Convertible Notes. The Company recorded interest expense related to the accretion of the discount and the amortization of the debt issuance costs of $0.9 million for the year ended December 31, 2020.
Prior to June 15, 2026, the Convertible Notes will be convertible only upon certain circumstances. On and after June 15, 2026, holders may convert any of their Convertible Notes into the Company’s common shares of beneficial interest (“common shares”), at the applicable conversion rate at any time at their election two days prior to the maturity date. The initial conversion rate is 39.2549 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $25.47 per share. The conversion rate is subject to adjustment in certain circumstances. As of December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount.
The Company may redeem for cash all or a portion of the Convertible Notes, at its option, on or after December 20, 2023 upon certain circumstances. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If certain make-whole fundamental changes occur, the conversion rate for the Convertible Notes may be increased.
In connection with the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offering of the Convertible Notes or their respective affiliates and other financial institutions (the “Capped Call Counterparties”). The Capped Call Transactions initially cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of common shares underlying the Convertible Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to holders of common shares upon conversion of the Convertible Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Convertible Notes upon conversion thereof, with such reduction and/or offset subject to a cap. The upper strike price of the Capped Call Transactions is $33.0225 per share. The cost of the Capped Call Transactions was $38.3 million and was recorded within additional paid-in capital.
Senior Unsecured Notes
The Company has $60.0 million of senior unsecured notes outstanding bearing a fixed interest rate of 4.70% per annum and maturing in December 2023 (the "Series A Notes") and $40.0 million of senior unsecured notes bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes"). The debt covenants of the Series A Notes and the Series B Notes are substantially similar to those of the Company's senior unsecured revolving credit facility. As of December 31, 2020, the Company was in compliance with all such debt covenants.
Interest Expense
The components of the Company's interest expense consisted of the following (in thousands):
For the year ended December 31,
202020192018
Unsecured revolving credit facilities$10,210 $4,530 $11,274 
Unsecured term loan facilities72,642 79,813 30,479 
Convertible senior notes365 — — 
Senior unsecured notes4,792 4,792 4,686 
Mortgage debt— 2,293 2,592 
Amortization of deferred financing fees7,296 7,115 2,565 
Other8,793 9,931 2,327 
Total interest expense$104,098 $108,474 $53,923 
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 convertible senior notes) as of December 31, 2020 and 2019 was $491.8 million and $101.2 million, respectively.
Future Minimum Principal Payments
As of December 31, 2020, the future minimum principal payments for the Company's debt are as follows (in thousands):
2021$40,966 
2022564,034 
2023760,000 
2024510,000 
202540,000 
Thereafter500,000 
Total debt principle payments$2,415,000 
Deferred financing costs(134,529)
Total debt$2,280,471 
Derivative and Hedging Activities
The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The Company's interest rate swaps at December 31, 2020 and 2019 consisted of the following (dollars in thousands):
Notional Value as of
Hedge TypeInterest RateMaturityDecember 31, 2020December 31, 2019
Swap - cash flow1.63%January 2020$— $50,000 
Swap - cash flow1.63%January 2020— 50,000 
Swap - cash flow2.46%January 2020— 50,000 
Swap - cash flow2.46%January 2020— 50,000 
Swap - cash flow1.66%January 2020— 50,000 
Swap - cash flow1.66%January 2020— 50,000 
Swap - cash flow2.12%December 2020— 100,000 
Swap - cash flow2.12%December 2020— 100,000 
Swap - cash flow1.74%January 202175,000 75,000 
Swap - cash flow1.75%January 202150,000 50,000 
Swap - cash flow1.53%January 202137,500 37,500 
Swap - cash flow1.53%January 202137,500 37,500 
Swap - cash flow1.46%(1)January 2021100,000 100,000 
Swap - cash flow1.47%(1)January 202147,500 47,500 
Swap - cash flow1.47%(1)January 202147,500 47,500 
Swap - cash flow1.47%(1)January 202147,500 47,500 
Swap - cash flow1.47%(1)January 202147,500 47,500 
Swap - cash flow2.60%October 202155,000 55,000 
Swap - cash flow2.60%October 202155,000 55,000 
Swap - cash flow1.78%(1)January 2022100,000 100,000 
Swap - cash flow1.78%(1)January 202250,000 50,000 
Swap - cash flow1.79%(1)January 202230,000 30,000 
Swap - cash flow1.68%April 202225,000 25,000 
Swap - cash flow1.68%April 202225,000 25,000 
Swap - cash flow1.64%April 202225,000 25,000 
Swap - cash flow1.64%April 202225,000 25,000 
Swap - cash flow1.99%November 202385,000 85,000 
Swap - cash flow1.99%November 202385,000 85,000 
Swap - cash flow1.99%November 202350,000 50,000 
Swap - cash flow1.99%November 202330,000 30,000 
Swap - cash flow2.60%January 202475,000 — 
Swap - cash flow2.60%January 202450,000 — 
Swap - cash flow2.60%January 202425,000 — 
Swap - cash flow2.60%January 202475,000 — 
Swap - cash flow2.60%January 202475,000 — 
Total$1,430,000 $1,630,000 
________________________
(1) Swaps assumed in connection with the Company's merger with LaSalle Hotel Properties on November 30, 2018.
In addition, as of December 31, 2020 and 2019, the Company had interest rates swaps for aggregate notional amounts of $490.0 million and $590.0 million, respectively, which will become effective in the future as current swaps mature. The Company records all derivative instruments at fair value in the accompanying 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 December 31, 2020, the Company's derivative instruments were in liability positions, with aggregate liability fair values of $58.0 million which are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets. The Company expects approximately $24.7 million will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months.