XML 26 R12.htm IDEA: XBRL DOCUMENT v3.22.4
Debt
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Debt Debt
In 2021, the Company amended the agreements governing its credit facilities, term loan facilities and senior notes to, among other things, waive financial covenants until the second quarter of 2022 (with substantially less-restrictive covenants through the end of the first quarter of 2023), extend certain debt maturity dates and increase the interest rate spread. The Company exited the debt covenant waiver period as of the end of the second quarter of 2022.
On October 13, 2022, the Company entered into the Fifth Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent and certain other agents and lenders ("Credit Agreement"). The $2.0 billion Credit Agreement provides for a $650.0 million senior unsecured revolving credit facility and three $460.0 million unsecured term loan facilities totaling $1.38 billion. Proceeds from the new term loans and $26.7 million of cash on hand were used to repay the outstanding balances on the prior term loans. The Company incurred $7.4 million in costs related to the refinancing which were recorded in interest expense in the accompanying consolidated statement of operations. The Company may request additional lender commitments to increase the aggregate borrowing capacity under the Credit Agreement up to an additional $970.0 million.
The Company's debt consisted of the following as of December 31, 2022 and 2021 (dollars in thousands):
   Balance Outstanding as of
 Interest Rate at December 31, 2022Maturity DateDecember 31, 2022December 31, 2021
Revolving credit facilities
Senior unsecured credit facility-
(1)(2)
October 2026$— $— 
PHL unsecured credit facility-
(1)
October 2026— — 
Revolving credit facilities$— $— 
Unsecured term loans
Term Loan 20244.84%
(1)
October 2024460,000 — 
Term Loan 20253.59%
(1)
October 2025460,000 — 
Term Loan 20273.19%
(1)
October 2027460,000 — 
First Term Loan-January 2023— 26,000 
First Term Loan Extended-March 2024— 274,000 
Second Term Loan-April 2022— 26,327 
Fourth Term Loan-October 2024— 110,000 
Sixth Term Loan Tranche 2021 Extended-November 2022— 82,071 
Sixth Term Loan Tranche 2022-November 2022— 114,670 
Sixth Term Loan Tranche 2023-November 2023— 400,000 
Sixth Term Loan Tranche 2024-January 2024— 400,000 
Term loan principal$1,380,000 $1,433,068 
Convertible senior notes principal1.75%December 2026$750,000 $750,000 
Senior unsecured notes
Series A Notes4.70%
(3)
December 202347,600 47,600 
Series B Notes4.93%December 20252,400 2,400 
Senior unsecured notes principal$50,000 $50,000 
Mortgage loans
Margaritaville Hollywood Beach Resort6.69%
(4)
May 2023161,500 161,500 
Estancia La Jolla Hotel & Spa5.07%September 202859,485 61,373 
Mortgage loans principal$220,985 $222,873 
Total debt principal$2,400,985 $2,455,941 
Unamortized debt premiums, discount and deferred financing costs, net(13,692)(14,053)
Debt, Net$2,387,293 $2,441,888 
______________________
(1)    Borrowings bear interest at floating rates. Interest rate at December 31, 2022 gives effect to interest rate hedges.
(2)    The Company has the option to extend the maturity date of October 13, 2026 for up to two six-month periods, pursuant to certain terms and conditions and payment of an extension fee, for a maximum maturity date of October 13, 2027.
(3)    The Company intends to pay off the Series A Notes using available cash or borrowings under the revolving credit facility at maturity.
(4)    In April 2022, the Company exercised its option to extend the maturity date to May 2023. 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 further to May 2024, which the Company expects to exercise.
Unsecured Revolving Credit Facilities
The $650.0 million senior unsecured revolving credit facility provided for in the Credit Agreement matures in October 2026 and provides for two six-month extension options, subject to certain terms and conditions and payment of an extension fee. All borrowings under the $650.0 million senior unsecured revolving credit facility bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus 0.10% (the “SOFR Adjustment”) plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The margins for revolving credit facility loans range in amount from 1.45% to 2.50% for SOFR-based loans and 0.45% to 1.50% for Base Rate-based loans, depending on the Company’s leverage ratio. As of December 31, 2022, the Company had no outstanding borrowings, $12.6 million of outstanding letters of credit and a borrowing capacity of $637.4 million remaining on its senior unsecured revolving credit facility. 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.
Under the terms of the credit agreement for the senior 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 facility. The Company pays a fee at a rate per annum equal to the applicable margin based upon the Company's leverage ratio. 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 $12.6 million and $12.1 million were outstanding as of December 31, 2022 and 2021, respectively.
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. On October 13, 2022, PHL amended and restated the agreement governing the PHL Credit Facility to extend the maturity to October 2026. The PHL Credit Facility has substantially similar terms as the Company's senior unsecured revolving credit facility. Borrowings on the PHL Credit Facility bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus the SOFR Adjustment plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Credit Agreement, which governs the Company's senior unsecured revolving credit facility. As of December 31, 2022, the Company had no borrowings under the PHL Credit Facility and had $20.0 million borrowing capacity remaining available under the PHL Credit Facility.
As of December 31, 2022, 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 three $460.0 million term loans provided for in the Credit Agreement mature in October 2024, October 2025 and October 2027, respectively. The term loans bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus the SOFR Adjustment plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The margins for term loans range in amount from 1.40% to 2.45% for SOFR-based loans and 0.40% to 1.45% for Base Rate-based loans, depending on the Company's leverage ratio. The term loans are subject to the debt covenants in the Credit Agreement. As of December 31, 2022, the Company was in compliance with all debt covenants of its term loans.
The Company entered into interest rate swap agreements to fix the SOFR 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 $13.1 million and $12.7 million for the years ended December 31, 2022 and 2021, 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, 2022 and 2021, 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"). 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, 2022, 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%. In April 2022, the Company exercised its option to extend the maturity date to May 9, 2023. The Company has an option to extend the maturity date further to May 9, 2024, which the Company expects to exercise. If the loan is extended, the interest rate spread will increase by 20 basis points. 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. These properties are not in a cash trap and no event of default has occurred under the loan documents.
Interest Expense
The components of the Company's interest expense consisted of the following for the years ended December 31, 2022, 2021, and 2020 (in thousands):
For the year ended December 31,
202220212020
Unsecured revolving credit facilities$2,531 $2,092 $10,210 
Unsecured term loan facilities52,355 61,529 72,642 
Convertible senior notes13,125 12,662 365 
Senior unsecured notes2,525 3,562 4,792 
Mortgage debt9,788 1,375 — 
Amortization of deferred financing fees, (premiums) and discounts16,465 9,741 7,296 
Other3,199 5,672 8,793 
Total interest expense$99,988 $96,633 $104,098 
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, 2022 and 2021 was $700.5 million and $747.8 million, respectively.
Future Minimum Principal Payments
As of December 31, 2022, 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):
2023$49,588 
2024623,584 
2025464,602 
2026752,318 
2027462,439 
Thereafter48,454 
Total debt principle payments$2,400,985 
Deferred financing costs, net(21,373)
Debt premium (discount), net7,681 
Total debt$2,387,293 
Derivative and Hedging Activities
The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The Company's interest rate swaps at December 31, 2022 and 2021 consisted of the following, by maturity date (dollars in thousands):
Aggregate Notional Value as of
Hedge Type
Interest Rate Range
(SOFR)(1)
MaturityDecember 31, 2022December 31, 2021
Swap-cash flow—January 2022$— $180,000 
Swap-cash flow—April 2022— 100,000 
Swap-cash flow
0.05% - 0.07%
January 2023200,000 200,000 
Swap-cash flow
1.84% - 1.87%
November 2023250,000 250,000 
Swap-cash flow
 2.47% - 2.50%
January 2024300,000 300,000 
Swap-cash flow
 1.33% - 1.36%
February 2026290,000 290,000 
Total$1,040,000 $1,320,000 
______________________
(1)    In October 2022, the Company transitioned from LIBOR-based interest rates to SOFR-based interest rates for its interest rate swap agreements. There are no other substantive changes to its interest rate swap agreements as part of this transition.
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, 2022, the Company's derivative instruments were in an asset position with an aggregate fair value of $36.0 million. None of the Company's derivative instruments was in a liability position as of December 31, 2022. 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 $23.2 million will be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months. In January 2023, the Company entered into interest rate swap agreements with an aggregate notional amount of $400.0 million, which will be effective in November 2023.