Note

- Mortgage Notes Payable

The Company’s mortgage notes payable as of

December 31, 2019

and

December 31, 2018

consist of the following, respectively (in thousands):

	Outstanding Mortgage Notes Payable
Encumbered Properties	December 31, 2019		Interest Rate	Payment	Maturity
Hilton Garden Inn Blacksburg Joint Venture	$	10,500	4.31 %	Interest Only, Principal paid at Maturity	June 2020
92 - Pack Mortgage Loan (1)		810,370	One-month LIBOR plus 2.14%	Interest Only, Principal paid at Maturity	Nov 2021, subject to three, one year extension rights
92 - Pack Senior Mezzanine Loan		93,146	One-month LIBOR plus 5.60%	Interest Only, Principal paid at Maturity	Nov 2021, subject to three, one year extension rights
92 - Pack Junior Mezzanine Loan		65,202	One-month LIBOR plus 8.50%	Interest Only, Principal paid at Maturity	Nov 2021, subject to three, one year extension rights
Additional Grace Mortgage Loan -20 properties in Grace Portfolio and one additional property		232,000	4.96 %	Interest Only, Principal paid at Maturity	October 2020
Term Loan -23 properties		261,948	One-month LIBOR plus 3.00%	Interest Only, Principal paid at Maturity	May 2020, subject to three, one year extension rights
Total Mortgage Notes Payable	$	1,473,166
Less: Deferred Financing, Net	$	13,113
Plus: Premium on Variable Interest-Only Bond	$	1,388
Total Mortgage Notes Payable, Net	$	1,461,441

(

)

As a result of asset sale activity, the number of hotel properties serving as collateral for this loan has been reduced to

as of

December 31, 2019

	Outstanding Mortgage Notes Payable
Encumbered Properties	December 31, 2018		Interest Rate	Payment	Maturity
Baltimore Courtyard & Providence Courtyard	$	45,500	4.30 %	Interest Only, Principal paid at Maturity	April 2019
Hilton Garden Inn Blacksburg Joint Venture		10,500	4.31 %	Interest Only, Principal paid at Maturity	June 2020
87 - Pack Mortgage Loan - 87 properties in Grace Portfolio		805,000	One-month LIBOR plus 2.56%	Interest Only, Principal paid at Maturity	May 2019, subject to three, one year extension rights
87 - Pack Mezzanine Loan - 87 properties in Grace Portfolio		110,000	One-month LIBOR plus 6.50%	Interest Only, Principal paid at Maturity	May 2019, subject to three, one year extension rights
Additional Grace Mortgage Loan - 20 properties in Grace Portfolio and one additional property		232,000	4.96 %	Interest Only, Principal paid at Maturity	October 2020
Term Loan -28 properties		310,000	One-month LIBOR plus 3.00%	Interest Only, Principal paid at Maturity	May 2019, subject to three, one year extension rights
Total Mortgage Notes Payable	$	1,513,000
Less: Deferred Financing, Net	$	5,491
Total Mortgage Notes Payable, Net	$	1,507,509

Interest expense related to the Company's mortgage notes payable for the year ended

December 31, 2019

, for the year ended

December 31, 2018

, and for the year ended

December 31,

2017

was

$81.1

million,

$76.3

million, and

$66.8

million, respectively.

Baltimore Courtyard and Providence Courtyard

April 5, 2019,

the Company refinanced mortgage debt secured by

two

of its hotel properties: the Courtyard Baltimore Downtown/Inner Harbor, a

205

-key select service hotel located in Baltimore, MD (the “Baltimore Courtyard”), and the Courtyard Providence Downtown, a

219

-key select service hotel located in downtown Providence, RI (the “Providence Courtyard”). The new mortgage and mezzanine loans were in an aggregate principal amount of

$46.1

million (such loans, the “Baltimore Courtyard and Providence Courtyard Bridge Loans”).

At the closing of the Baltimore Courtyard and Providence Courtyard Bridge Loans, the net proceeds after accrued interest and certain closing costs were used to repay the

$45.5

million principal amount then outstanding under the Company’s existing mortgage indebtedness on the Baltimore Courtyard and the Providence Courtyard properties.

The new loan dated

April 5, 2019

was then refinanced and prepaid in full at par in accordance with its terms on

May 1, 2019,

with proceeds from the

-Pack Loans.

Hilton Garden Inn Blacksburg Joint Venture

The Hilton Garden Inn Blacksburg Joint Venture Loan matures

June

2020.

July

2015

and each month thereafter, the Company is required to make an interest only payment based on the outstanding principal and a fixed annual interest rate of

4.31%.

The entire principal amount is due at maturity.

- Pack Loans

During the quarter ended

March 31, 2019

and the year ended

December 31, 2018

, a total of

of the Company’s hotels, all of which were originally acquired in

February 2015

as part of a portfolio initially comprising

116

hotel properties (the “Grace Portfolio”), were financed pursuant to a mortgage loan agreement (the

“87

-Pack Mortgage Loan”) and a mezzanine loan agreement (the

“87

-Pack Mezzanine Loan” and, collectively with the

-Pack Mortgage Loan, the

“87

-Pack Loans”), with an aggregate principal balance of

$915.0

million. The principal amount of the

-Pack Mortgage Loan was

$805.0

million and the

-Pack Mortgage Loan was secured by the

Company hotel properties (each, a

“87

-Pack Collateral Property”). The principal amount of the

-Pack Mezzanine Loan was

$110.0

million and the

-Pack Mezzanine Loan was secured by the ownership interest in the entities which own the

-Pack Collateral Properties and the related operating lessees.

May 1, 2019,

the

-Pack Loans matured and were refinanced as part of the

-Pack Loans.

The

-Pack Mortgage Loan required monthly interest payments at a variable rate equal to

one

-month LIBOR plus

2.56%,

and the

-Pack Mezzanine Loan required monthly interest payments at a variable rate equal to

one

-month LIBOR plus

6.50%,

for a combined weighted average interest rate of LIBOR plus

3.03%.

Pursuant to an interest rate cap agreement, the LIBOR portions of the interest rates due under the

-Pack Loans were effectively capped at the greater of (i)

4.0%

and (ii) a rate that would result in a debt service coverage ratio specified in the loan documents.

-Pack Loans

May 1,

2019,

the Company refinanced the

-Pack Loans and the Baltimore Courtyard and Providence Courtyard Bridge Loans with new mortgage and mezzanine indebtedness of

$1,040

million secured by

of the Company’s hotel properties (the

“92

-Pack Loans”).

At closing, the Company used the net proceeds from the

-Pack Loans after accrued interest and closing costs to repay

$961.1

million outstanding under the

-Pack Loans and the Baltimore Courtyard and Providence Courtyard Bridge Loans. The Company also used

$10.0

million of proceeds to fund a reserve with the lenders that the Company can utilize to fund expenditures for work required to be performed under property improvement plans (“PIPs”) required by franchisors of the

hotel properties. During the term of the

-Pack Loans, the Company will be required to periodically deposit additional reserves with the lenders that the Company can utilize to fund a portion of future PIP work and other capital improvements.

The

-Pack Loans are fully prepayable with certain prepayment fees applicable on or prior to

May 7, 2020,

provided, however, that the

first

25%

of each of the

-Pack Loans is prepayable at par. Following

May 7, 2020,

each of the

-Pack Loans

may

be prepaid without payment of any prepayment fee or any other fee or penalty. Prepayments under the mortgage loan are generally conditioned on a pro-rata prepayment being made under the mezzanine loans.

The

-Pack Mortgage Loan requires monthly interest payments at a variable rate equal to

one

-month LIBOR plus

2.14%,

the

-Pack Senior Mezzanine Loan required monthly interest payments at a variable rate equal to

one

-month LIBOR plus

5.60%,

and the

-Pack Junior Mezzanine Loan requires monthly interest payments at a variable rate equal to

one

-month LIBOR plus

8.50%

for a combined weighted average interest rate of LIBOR plus

2.90%.

Pursuant to an interest rate cap agreement, the LIBOR portions of the interest rates due under the

-Pack Loans were effectively capped at

4.0%.

In connection with a sale or disposition to a

third

party of any of the

hotel properties serving as collateral, such property

may

be released from the

-Pack Loans, subject to certain conditions and limitations, by prepayment of a portion of the

-Pack Loans at a release price calculated in accordance with the terms of the

-Pack Loan

s. As of

December 31, 2019

, the Company has sold

hotel properties pursuant to these provisions and prepaid approximately

$59.6

million of principal under the mortgage loan and approximately

$11.7

million of principal under the mezzanine loans, thereby reducing the number of hotel properties serving as collateral under the

-Pack Loans to

hotels.

For the term of the

-Pack Loans, the Company and the OP are required to maintain, on a consolidated basis, a net worth of (i)

$250.0

million (excluding their interest in the hotel properties serving as collateral and excluding accumulated depreciation and amortization) and (ii)

$500.0

million (including their interest in the hotel properties serving as collateral but excluding accumulated depreciation and amortization). As of

December 31, 2019

, the Company was in compliance with this financial covenant.

Variable Interest-Only Bond

During the year ended

December 31, 2019

, the Company recorded a derivative asset and premium associated with a variable interest-only bond issued as part of the lenders' securitization of the

-Pack Mortgage Loan and acquired by the Company in connection with such securitization. The interest-only bond was acquired to effectively reduce the Company’s borrowing cost on the

-Pack Loans. The premium on the interest-only bond is amortized on a straight-line basis over the life of the bond and is included in the Mortgage notes payable on the Company's Consolidated Balance Sheet as of

December 31, 2019

. The Company values the derivative asset portion of the variable interest-only bond at fair value (See Note

- Fair Value Measurements).

Additional Grace Mortgage Loan

A portion of the purchase price of the Grace Portfolio was financed through additional mortgage financing which loan was refinanced during

October 2015 (

the “Additional Grace Mortgage Loan”). The Additional Grace Mortgage Loan carries a fixed annual interest rate of

4.96%

per annum with a maturity date on

October 6, 2020.

Pursuant to the Additional Grace Mortgage Loan, the Company agreed to make periodic payments into an escrow account for the PIPs required by the franchisors, and the Company made the final PIP reserve payment during

June 2018.

The Additional Grace Mortgage Loan includes the following financial covenants: minimum consolidated net worth and minimum consolidated liquidity. As of

December 31, 2019

, the Company was in compliance with these financial covenants.

Term Loan

April

27,

2017,

the Company and the OP, as guarantors, and certain wholly-owned subsidiaries of the OP, as borrowers, entered into a Second Amended and Restated Term Loan Agreement (as amended, the “Term Loan”) in an aggregate principal amount of

$310.0

million, initially collateralized by

of the Company’s hotel properties (each, a “Term Loan Collateral Property”).

Prior to the closing of the

-Pack Loans, the Term Loan was scheduled to mature on

May

2019,

subject to

three one

-year extension rights at the Company's option which, if all

three

extension rights were exercised, would have resulted in an outside maturity date of

May

2022.

At the closing of the

-Pack Loans,

$25.0

million of the net proceeds were used to prepay principal under the Term Loan. This prepayment reduced the amount outstanding under the Term Loan to

$285.0

million, and concurrently, the Company extended the maturity of the Term Loan in accordance with its terms to

May 1, 2020.

May 22, 2019,

the Company entered into an amendment to the Term Loan which reduced the commitment under the Term Loan from

$310.0

million to

$285.0

million and added

one

additional extension term of

one

-year to the term of the Term Loan, such that if the Company exercises all extension rights, the maturity date of the Term Loan would be

May 1, 2023.

The Term Loan is prepayable in whole or in part at any time, subject to payment of LIBOR breakage, if any.

The Term Loan requires monthly interest payments at a variable rate of

one

-month LIBOR plus

3.00%.

Pursuant to an interest rate cap agreement, the LIBOR portions of the interest rates due under the Term Loan is capped at

4.00%

during the initial term, and a rate based on a debt service coverage ratio during any extension term.

In connection with a sale or disposition to a

third

party of an individual Term Loan Collateral Property, such Term Loan Collateral Property

may

be released from the Term Loan, subject to certain conditions and limitations, by prepayment of a portion of the Term Loan at a release price calculated in accordance with the terms of the Term Loan. As of

December 31, 2019

, the Company has sold

five

hotel properties pursuant to these provisions and prepaid approximately

$23.1

million of principal under the Term Loan, thereby reducing the number of hotel properties serving as collateral under the Term Loan to

hotels.

The Term Loan also provides for certain amounts to be deposited into reserve accounts, including with respect to all costs associated with the PIPs required pursuant to the franchise agreements related to the Term Loan Collateral Properties.

For the term of the Term Loan, the Company and the OP are required to maintain, on a consolidated basis, a net worth of

$250.0

million (excluding accumulated depreciation and amortization). As of

December 31, 2019

, the Company was in compliance with this financial covenant.