Mortgages Payable

6 Months Ended

Jun. 30, 2019

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

6. Mortgages Payable

Mortgages payable as of June 30, 2019 and December 31, 2018 consisted of the following:


	June 30, 2019			December 31, 2018
Mortgages payable before unamortized deferred financing costs	$	695,132		$	695,387
Unamortized deferred financing costs		(284	)		(2,505	)
Mortgages payable related to assets held and used	$	694,848		$	692,882
Mortgages payable related to assets of hotels held for sale		—			22,324
Total mortgages payable	$	694,848		$	715,206

On July 7, 2017, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company entered into a loan agreement (the “Loan Agreement”) with Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association (collectively, the “Lenders”), pursuant to which the Borrowers obtained an $

800

million mortgage loan from the Lenders (the “Loan”). The Loan was secured by first-priority, cross-collateralized mortgage liens on

of the

properties owned or ground-leased by certain subsidiaries of the Company as of the date of the Loan, all related personal property, reserves, a pledge of all income received by the Borrowers with respect to the properties, a pledge of the ownership interests in the operating lessee, BRE Select Hotels Operating LLC, a subsidiary of the Company (the “Operating Lessee”), and a security interest in deposit accounts.

The initial interest rate of the Loan is equal to the

one-month

London interbank offered rate for deposits, or LIBOR, plus a margin rate of

2.15

%. In connection with the Loan, the Borrowers entered into an interest rate cap agreement, which caps the base interest rate before applying the applicable margins on the Loan, for an aggregate notional amount of $

800

million, a termination date of

July 9, 2019

and a cap rate of

4.25

%. The Loan was scheduled to mature on July 9, 2019, with an option for the Borrowers to extend the initial term for five

one-year

extension terms, subject to certain conditions. The Company exercised the first of five one-year extensions on July 9, 2019, which extends the loan to July 9, 2020. In connection with the extension of the Loan, the Borrowers entered into an interest rate cap agreement, which caps the base interest rate before applying the applicable margins on the Loan, for an aggregate notional amount of $

679.8

million, a termination date of

July 9, 2020

and a cap rate of

5.00

%. The Company anticipates that it will exercise the remaining extension options as it is probable that the Company will be in compliance with all of the requirements of the Loan, and thereby have the ability to extend.

The Loan is not subject to any mandatory principal amortization. The Loan contains various representations and warranties, as well as certain financial, operating and other covenants. The Company believes it was in compliance with all applicable covenants as of June 30, 2019 and December 31, 2018.

In connection with the Loan, the Company capitalized deferred financing costs of $

10.8

million, which consists of amounts paid for direct and indirect costs associated with the origination of the Loan. Deferred financing costs were $

0.3

million and $

2.5

million as of June 30, 2019 and December 31, 2018, respectively, and are presented as a direct deduction of mortgages payable on the condensed consolidated balance sheets. Such costs are amortized on a straight-line basis (which approximates the effective interest method) over the term of the related debt.

As part of the Merger, the Company assumed an existing loan with a commercial lender secured by the Company’s Fort Worth, Texas Residence Inn property. The loan matures on

October 6, 2022

and carries a fixed interest rate of

4.73

%. The outstanding principal balance was $

15.3

million and $

15.6

million as of June 30, 2019 and December 31, 2018, respectively, and is included in mortgages payable in the condensed consolidated balance sheets.

Components of interest expense for the three and six months ended June 30, 2019 and 2018 were as follows:


	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
Mortgage debt	$	8,102		$	7,644		$	16,377		$	15,146
Amortization of deferred financing costs		1,110			1,197			2,221			3,156
Capitalized interest		(18	)		(20	)		(70	)		(57	)
Total interest expense, net	$	9,194		$	8,821		$	18,528		$	18,245

Future scheduled principal payments of debt obligations as of June 30, 2019 are as follows:


2019 (remaining months)	$	680,001
2020		533
2021		562
2022		14,036
2023		—
2024		—
Thereafter		—
Total	$	695,132