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Debt
 12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
Debt Debt
On February 18, 2021, the Company amended its credit agreements and related documents governing its unsecured revolving credit facilities, term loan agreements and senior notes, which:
•waived all of its financial covenants until the second quarter of 2022 (with substantially less-restrictive covenants through the end of the first quarter of 2023), except for the minimum fixed charge coverage ("FCCR") and the minimum unsecured interest coverage ratio ("Unsecured ICR") which were extended through December 31, 2021;
•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 2.40% and unsecured term loans to LIBOR plus 2.35%;
•increased the fixed rate on the senior unsecured notes by 0.45% during the waiver period; and
•extended other terms through the waiver period.
On December 9, 2021, the Company amended its credit agreements and related documents governing its unsecured revolving credit facilities, term loan agreements and senior notes, which:
•extended the maturity date of the Company's senior unsecured credit facility from January 2022 to March 2023, and provided an option to extend for up to two six-month periods;
•extended the maturity date of the Company's PHL unsecured credit facility from January 2022 to March 2023, and reduced the borrowing capacity principal amount from $25.0 million to $20.0 million;
•extended the maturity date for $274.0 million of the Company's First Term Loan from January 2023 to March 2024;
•provided an option to extend up to $69.8 million of the remaining principal balance of the Company's Sixth Term Loan Tranche 2021 from November 2022 to November 2023;
•provided an option to extend up to $93.0 million of the remaining principal balance of the Company's Sixth Term Loan Tranche 2022 from November 2022 to November 2023;
•set the maximum amount of permitted additional secured non-recourse indebtedness at $400.0 million;
•set the amount that may be reinvested in the acquisition of unencumbered hotel properties funded by the disposition of hotel properties at $1.0 billion;
•extended the waiver period for the minimum FCCR and the minimum Unsecured ICR financial covenants until the second quarter of 2022;
•set the minimum FCCR for the second quarter of 2022 to 1.25:1.00; and
•set the minimum Unsecured ICR for the second quarter of 2022 to 1.50:1.00.
The Company's debt consisted of the following as of December 31, 2021 and 2020 (dollars in thousands):
   Balance Outstanding as of
 Interest RateMaturity DateDecember 31, 2021December 31, 2020
Revolving credit facilities
Senior unsecured credit facilityFloating
(1)(2)(3)
March 2023$— $40,000 
PHL unsecured credit facilityFloating
(2)(4)
March 2023— — 
Total revolving credit facilities$— $40,000 
Unsecured term loans
First Term LoanFloating
(5)
January 202326,000 300,000 
First Term Loan ExtendedFloating
(5)
March 2024274,000 — 
Second Term LoanFloating
(5)
April 202226,327 65,000 
Fourth Term LoanFloating
(5)
October 2024110,000 110,000 
Sixth Term Loan
Tranche 2021Floating
(5)
November 2021— 40,966 
Tranche 2021 ExtendedFloating
(5)(9)
November 202282,071 173,034 
Tranche 2022Floating
(5)(10)
November 2022114,670 286,000 
Tranche 2023Floating
(5)
November 2023400,000 400,000 
Tranche 2024Floating
(5)
January 2024400,000 400,000 
Total Sixth Term Loan996,741 1,300,000 
Total term loans at stated value1,433,068 1,775,000 
Deferred financing costs, net(5,812)(8,455)
Total term loans$1,427,256 $1,766,545 
Convertible senior notes
Convertible senior notes1.75%December 2026750,000 500,000 
Debt premium (discount), net11,605 (113,099)
Deferred financing costs, net(16,204)(12,568)
Total convertible senior notes$745,401 $374,333 
Senior unsecured notes
Series A Notes5.15%
(6)
December 202347,600 60,000 
Series B Notes5.38%
(7)
December 20252,400 40,000 
Total senior unsecured notes at stated value50,000 100,000 
Deferred financing costs, net(162)(407)
Total senior unsecured notes$49,838 $99,593 
Mortgage loans
Margaritaville Hollywood Beach ResortFloating
(8)
May 2022161,500 — 
Estancia La Jolla Hotel & Spa5.07%September 202861,373 — 
Total mortgage loans at stated value222,873 — 
Debt premium (discount), net(2,735)— 
Deferred financing costs, net(745)— 
Total mortgage loans$219,393 $— 
Total debt$2,441,888 $2,280,471 
______________________
(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)    In December 2021, the Company exercised the option to extend the maturity date to March 2023, pursuant to certain terms and conditions and payment of an extension fee.
(3)    Of the total borrowing capacity, $39.0 million will mature in January 2022. The Company has the option to extend the maturity date of March 2023 for the remaining $611.0 million for up to two six-month periods, pursuant to certain terms and conditions and payment of an extension fee.
(4)    Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.
(5)    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, 2021, approximately $1.3 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.06%, after taking into account interest rate swap agreements, and approximately $113.1 million bore an effective weighted-average floating interest rate of 2.64%. As of December 31, 2020, approximately $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 approximately $345.0 million bore a weighted-average floating interest rate of 2.46%.
(6)    In February 2021, the interest rate increased from 4.70% to 5.15%. The increased interest rate is effective through the end of the waiver period.
(7)    In February 2021, the interest rate increased from 4.93% to 5.38%. The increased interest rate is effective through the end of the waiver period.
(8)    The loan bears interest at a floating rate equal to one-month LIBOR plus a weighted-average spread of 2.37%. The Company has the option to extend the maturity date for up to two one-year periods.
(9)    The Company has the option to extend the maturity date for $69.8 million of the principal balance by up to one year, subject to certain terms and conditions and payment of an extension fee.
(10)    The Company has the option to extend the maturity date for $93.0 million of the principal balance by up to one year, subject to certain terms and conditions and payment of an extension fee.
Unsecured Revolving Credit Facilities
The Company has a $650.0 million senior unsecured revolving credit facility, of which $39.0 million will mature in January 2022. The remaining $611.0 will mature in March 2023, with options to extend the maturity date for up to two six-month periods, subject to certain terms and conditions and payment of an extension fee. As of December 31, 2021, the Company had no outstanding borrowings, $12.1 million of outstanding letters of credit and borrowing capacity of $637.9 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 the London Inter-bank Offered Rate ("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 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 2.40% 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 $20.0 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 March 2023. 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 2.40% 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, 2021, the Company had no borrowings under the PHL Credit Facility and had $20.0 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 $12.1 million and $6.8 million were outstanding as of December 31, 2021 and 2020, respectively.
As of December 31, 2021, 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. During the year ended December 31, 2021, the Company repaid $341.9 million aggregate principal balance of the Company's Second Term Loan and Sixth Term Loan. As of December 31, 2021, 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 for further discussion on the interest rate swaps.
Convertible Senior Notes
In December 2020, the Company issued $500.0 million aggregate principal amount of 1.75% Convertible Senior Notes due December 2026 (the "Convertible Notes"). The net proceeds from this offering of the Convertible Notes were approximately $487.3 million after deducting the underwriting fees and other expenses paid by the Company.
In February 2021, the Company issued an additional $250.0 million aggregate principal amount of Convertible Notes. These additional Convertible Notes were sold at a 5.5% premium to par and generated net proceeds of approximately $257.2 million after deducting the underwriting fees and other expenses paid by the Company of $6.5 million, which was offset by a premium received in the amount of $13.8 million.
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 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 $12.7 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively.
The Company separated the Convertible Notes issued in December 2020 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 such Convertible Notes, or $113.9 million. The amount recorded in equity was not subject to remeasurement or amortization. The $113.9 million also represented the initial discount recorded on the Convertible Notes. As a result of the Company's early adoption of ASU 2020-06 on January 1, 2021, the Convertible Notes are now recorded as a single liability with no portion recorded in equity. The Company also ceased recording non-cash interest expense associated with the amortization of the debt discount.
Prior to June 15, 2026, the Convertible Notes will be convertible 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, 2021 and 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 issuances, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offerings of the Convertible Notes or their respective affiliates and other financial institutions. 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 entered into in December 2020 and February 2021 was $38.3 million and $21.0 million, respectively, and was recorded within additional paid-in capital.
Senior Unsecured Notes
The Company has $47.6 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 $2.4 million of senior unsecured notes outstanding bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes"). As a result of the amendments described above, the interest rates of the Series A Notes and the Series B Notes are fixed at 5.15% and 5.38%, respectively, for the duration of the waiver period. 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, 2021, the Company was in compliance with all such debt covenants.
Mortgage Loans
On September 23, 2021, the Company assumed a $161.5 million loan secured by a first-lien mortgage on the leasehold interest of Margaritaville Hollywood Beach Resort ("Margaritaville"). The loan requires interest-only payments based on a floating interest rate of one-month LIBOR plus a weighted-average spread of 2.37%. The loan matures on May 9, 2022 and may be extended for up to two one-year periods. If the loan is extended for the second of the two one-year periods, the interest rate spread will increase by 20 basis points for the second-year period only. The Company expects to exercise both extensions. The loan is also subject to an interest rate cap agreement.
On December 1, 2021, the Company assumed a $61.7 million loan secured by a first-lien mortgage on the leasehold interest of Estancia La Jolla Hotel & Spa ("Estancia"). The loan requires both principal and interest monthly payments based on a fixed interest rate of 5.07%. The loan matures on September 1, 2028.
The Company's mortgage loans associated with Margaritaville and Estancia are non-recourse to the Company except for customary carve-outs to the general non-recourse liability. The loans contain customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions. Cash trap provisions are triggered if the hotel's performance is below a certain threshold. Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender. No event of default has occurred under the loan documents.
The mortgage loans triggered the cash trap provisions prior to the acquisitions, and therefore cash from hotel operations is being held by the lender in the cash management accounts and reflected as restricted cash in the accompanying consolidated balance sheets. Cash will be released from the lockbox once the hotel reaches profitability levels that terminate the cash trap or the loan is paid off.
Interest Expense
The components of the Company's interest expense consisted of the following for the years ended December 31, 2021, 2020, and 2019 (in thousands):
For the year ended December 31,
202120202019
Unsecured revolving credit facilities$2,092 $10,210 $4,530 
Unsecured term loan facilities61,529 72,642 79,813 
Convertible senior notes12,662 365 — 
Senior unsecured notes3,562 4,792 4,792 
Mortgage debt1,375 — 2,293 
Amortization of deferred financing fees, (premiums) and discounts9,741 7,296 7,115 
Other5,672 8,793 9,931 
Total interest expense$96,633 $104,098 $108,474 
Fair Value
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, convertible senior notes and the Estancia mortgage loan) as of December 31, 2021 and 2020 was $747.8 million and $491.8 million, respectively.
Future Minimum Principal Payments
As of December 31, 2021, the future minimum principal payments for the Company's debt, assuming all extension options available in the Company's debt agreements are exercised, are as follows (in thousands):
2022$62,124 
2023638,419 
2024947,584 
20254,602 
2026752,318 
Thereafter50,894 
Total debt principle payments$2,455,941 
Deferred financing costs, net(22,923)
Debt premium (discount), net8,870 
Total debt$2,441,888 
Derivative and Hedging Activities
The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The Company's interest rate swaps at December 31, 2021 and 2020 consisted of the following, by maturity date (dollars in thousands):
Aggregate Notional Value as of
Hedge TypeInterest Rate RangeMaturityDecember 31, 2021December 31, 2020
Swap-cash flow
1.46% - 1.75%
January 2021$— $490,000 
Swap-cash flow
2.60%
October 2021— 110,000 
Swap-cash flow
1.78% - 1.79%
January 2022180,000 180,000 
Swap-cash flow
1.64% - 1.68%
April 2022100,000 100,000 
Swap-cash flow
0.17%
January 2023200,000 — 
Swap-cash flow
1.99%
November 2023250,000 250,000 
Swap-cash flow
2.60%
January 2024300,000 300,000 
Swap-cash flow
1.43% - 1.44%
February 2026290,000 — 
Total$1,320,000 $1,430,000 
The Company records all derivative instruments at fair value in the accompanying consolidated balance sheets. Fair values of interest rate swaps and caps 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, 2021, the Company's derivative instruments were in both asset and liability positions, with aggregate asset and liability fair values of $0.6 million and $20.2 million, respectively. Derivative assets are included in prepaid expenses and other assets and derivative liabilities are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets. The Company expects approximately $13.2 million will be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months.