Note 7. Long-Term Debt

Long-term debt consisted of the following loans payable at December 31:


	2013	2012
Revolving credit facility from Great Western Bank evidenced by a promissory note dated December 9, 2011. The revolving line of credit has a limit of $12.5 million with interest payable monthly. The facility bore interest at 5.95% per annum. On March 26, 2013, the maturity was extended to June 30, 2014, and the interest rate was lowered to 4.95%.	$ 11,037	$ 2,451

Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 9, 2011, in the amount of $7.5 million. The note bore interest at 6.00% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On March 26, 2013, the maturity was extended to June 30, 2015, and the interest rate was lowered to 5.00%.	$ 7,074	$ 7,296

Mortgage loan payable to Great Western Bank evidenced by a promissory note dated May 5, 2009, in the amount of $10 million. The note bore interest at 6.00% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On March 26, 2013, the maturity was extended to June 30, 2015, and the interest rate was lowered to 5.00%.	$1,182	$ 6,786

Mortgage loan payable to Citigroup Global Markets Realty Corp. evidenced by a promissory note dated November 7, 2005, in the amount of $14.8 million. The note bears interest at 5.97% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on November 11, 2015.	$ 12,280	$ 12,667

Mortgage loan payable to GE evidenced by a promissory note dated December 31, 2007, in the amount of $7.9 million. The note bears interest at three-month LIBOR plus 2.00% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 3.74%.	$ 4,321	$ 4,572

Mortgage loan payable to GE evidenced by a promissory note dated August 18, 2006, in the amount of $17.9 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until September 1, 2016 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 7.17%.	$ 15,510	$ 15,943

Mortgage loan payable to GE evidenced by a promissory note dated January 5, 2007, in the amount of $15.6 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until February 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 7.17%.	$ 11,815	$ 12,261

Mortgage loan payable to GE evidenced by a promissory note dated February 6, 2007, in the amount of $3.4 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until March 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 7.17%.	$ 1,819	$ 3,102

Mortgage loan payable to GE evidenced by a promissory note dated May 16, 2007, in the amount of $27.8 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until June 1, 2017, when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2012 was 7.69%. The loan was paid in full in June 2013.	$ 0	$ 9,725

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.5 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020. The loan was paid in full in December 2013 with proceeds from the loan from Middle Patent Capital, LLC (see below).	$ 0	$ 1,357

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.8 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.2 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020. The loan was paid in full in December 2013 with proceeds from the loan from Middle Patent Capital, LLC (see below).	$ 0	$ 1,493

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $4.2 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $3.3 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020. The loan was paid in full in December 2013 with proceeds from the loan from Middle Patent Capital, LLC (see below).	$ 0	$ 2,270

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $5.1 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $4.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020. The loan was paid in full in December 2013 with proceeds from the loan from Middle Patent Capital, LLC (see below).	$ 0	$ 2,771

Mortgage loan payable to GE evidenced by a promissory note dated January 2, 2008, in the amount of $3.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 2.00% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 3.74%.	$ 2,934	$ 3,087

Mortgage loan payable to GE evidenced by a promissory note dated January 2, 2008 in the amount of $4.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 2.00% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2012 was 3.81%. The note was paid in full in August 2013.	$ 0	$ 3,977

Mortgage loan payable to GE evidenced by a promissory note dated January 31, 2008 in the amount of $2.5 million, dated January 31, 2008. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 2.56% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 1.00%. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2013 was 4.30%.	$ 2,122	$ 2,235

Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated June 7, 2011, in the amount of $3.1 million. The note bears interest at 6.25%. Monthly principal and interest payments are due through maturity, with the balance of the loan payable on June 15, 2016. On February 21, 2013, the interest rate was decreased to 5.5%.	$ 2,759	$ 2,923

Mortgage loan payable to Morgan Stanley Mortgage Capital Holdings, LLC evidenced by a promissory note dated November 2, 2012, in the amount of $30.6 million. The note bears interest at 5.83%. Monthly principal and interest payments are due through maturity, with the balance of the loan payable on December 1, 2017.	$ 29,655	$ 30,622

Mortgage loan payable to Elkhorn Valley Bank and Trust evidenced by a promissory note dated October 10, 2012, in the amount of $1.2 million. The note bears interest at 5.5%. Monthly interest payments are due through maturity, with the balance of the loan payable on October 15, 2014. The note was paid in full in February 2013.	$ 0	$ 1,142

Mortgage loan payable to Cantor Commercial Real Estate Lending evidenced by a promissory note dated October 12, 2012, in the amount of $6.2 million. The note bears interest at 4.25%. Monthly principal and interest payments are due through maturity, with the balance of the loan payable on November 6, 2017.	$ 6,041	$ 6,141

Mortgage loan payable to First State Bank evidenced by a promissory note dated January 10, 2013, in the amount of $2.4 million. The note bears interest at 5.5%. Monthly interest payments are due until September 1, 2016, when the remaining principal balance is due.	$ 1,196	$ 0

Mortgage loan payable to Middle Patent Capital, LLC evidenced by a promissory note dated December 6, 2013, in the amount of $8.3 million. The note bears interest at 12.5%. Monthly interest payments are due until June 2015, when the remaining principal balance is due.	$ 8,300	$ 0

Total Debt	$ 118,045	$ 132,821

The long-term debt is secured by 68 and 82 of the Company’s hotel properties, as of December 31, 2013 and 2012, respectively. The Company’s debt agreements contain requirements as to the maintenance of minimum levels of debt service and fixed charge coverage and required loan-to-value and leverage ratios, and place certain restrictions on dividends.

Financial Covenants

The key financial covenants for certain of our loan agreements and compliance calculations as of December 31, 2013 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2013, we were either in compliance with our financial covenants or obtained waivers for non-compliance (as discussed below). As a result, at December 31, 2013, we are not in default under the terms of any of our loans.



(Dollars in thousands)	December 31,		December 31,
Great Western Bank Covenants	2013		2013
Consolidated debt service coverage ratio	Requirement		Calculation
calculated as follows: *	≥1.05:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements		$	(1,353)
Net adjustments per loan agreement			16,654
Adjusted NOI per loan agreement (A)		$	15,301

Interest expense per financial statements -
continuing operations			6,421
Interest expense per financial statements -
discontinued operations			3,020
Total interest expense per financial statements		$	9,441

Net adjustments per loan agreement			2,067
Debt service per loan agreement (B)		$	11,508

Consolidated debt service coverage ratio			1.33
* Calculations based on prior four quarters



(Dollars in thousands)	December 31,		December 31,
Great Western Bank Covenants	2013		2013
Loan-specific debt service coverage ratio	Requirement		Calculation
calculated as follows: *	≥1.20:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements		$	(1,353)
Net adjustments per loan agreement			3,712
Adjusted NOI per loan agreement (A)		$	2,359

Interest expense per financial statements -
continuing operations			6,421
Interest expense per financial statements -
discontinued operations			3,020
Total interest expense per financial statements		$	9,441

Net adjustments per loan agreement			(7,752)
Debt service per loan agreement (B)		$	1,689

Loan-specific debt service coverage ratio			1.40 : 1
* Calculations based on prior four quarters



(Dollars in thousands)	December 31,		December 31,
Great Western Bank Covenants	2013		2013
Consolidated loan to value ratio	Requirement		Calculation
calculated as follows:	70.0%
Loan balance (A) / Value (B)
Loan balance (A)		$	118,045
Value (B)		$	208,804
Consolidated loan to value ratio			56.5	%



(Dollars in thousands)	December 31,		December 31,
Great Western Bank Covenants	2013		2013
Loan-specific loan to value ratio	Requirement		Calculation
calculated as follows:	70.0%
Loan balance (A) / Value (B)
Loan balance (A)		$	19,292
Value (B)		$	33,635
Loan-specific loan to value ratio			57.4	%



(Dollars in thousands)	December 31,		December 31,
Great Western Bank Covenants	2013		2013
Consolidated leverage ratio	Requirement		Calculation
calculated as follows:	≤ 4.25
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements
and loan agreement (A)		$	131,697

Total assets per financial statements			172,085
Total liabilities per financial statements			131,697
Tangible net worth per loan agreement (B)		$	40,388

Consolidated Leverage Ratio			3.26

The credit facilities with Great Western Bank also require that we not pay dividends in excess of 75% of our funds from operations per year. The credit facilities currently consist of a $12.5 million revolving credit facility and term loans in the original principal amount of $10 million and $7.5 million. The credit facilities provide for $12.5 million of availability under the revolving credit facility, subject to the limitation that the loans available to us through the revolving credit facility and term loans may not exceed the lesser of (a) an amount equal to 70% of the total appraised value of the hotels securing the credit facilities and (b) an amount that would result in a loan-specific debt service coverage ratio of less than 1.20 to 1. At December 31, 2013, the revolving credit facility was fully available and the outstanding balance was $11.0 million.



(Dollars in thousands)	December 31,		December 31,
GE Covenants	2013		2013
Loan-specific fixed charge coverage ratio	Requirement		Calculation
calculated as follows: *	≥ 1.30:1
Adjusted EBITDA (A) / Fixed charges (B)
Net loss per financial statements		$	(1,353)
Net adjustments per loan agreement			6,712
Adjusted EBITDA per loan agreement (A)		$	5,359

Interest expense per financial statements -
continuing operations			6,421
Interest expense per financial statements -
discontinued operations			3,020
Total interest expense per financial statements		$	9,441

Net adjustments per loan agreement			(5,334)
Fixed charges per loan agreement (B)		$	4,107
Loan-specific fixed charge coverage ratio			1.30 : 1
* Calculations based on prior four quarters



(Dollars in thousands)	December 31,		December 31,
GE Covenants	2013		2013
Loan-specific loan to value ratio	Requirement		Calculation
calculated as follows:	≤ 72.2%
Loan balance (A) / Value (B)
Loan balance (A)		$	38,521

Value (B)		$	55,120

Loan-specific loan to value ratio			69.9	%



(Dollars in thousands)	December 31,		December 31,
GE Covenants	2013		2013
Before dividend consolidated fixed charge	Requirement		Calculation
coverage ratio calculated as follows: *	≥ 1.20:1
Adjusted EBITDA (A) / Fixed charges (B)
Net loss per financial statements		$	(1,353)
Net adjustments per loan agreement			12,398
Adjusted EBITDA per loan agreement (A)		$	11,045

Interest expense per financial statements -
continuing operations			6,421
Interest expense per financial statements -
discontinued operations			3,020
Total interest expense per financial statements		$	9,441

Net adjustments per loan agreement			1,447
Fixed charges per loan agreement (B)		$	10,888
Before dividend consolidated fixed charge coverage ratio			1.01:1
* Calculations based on prior four quarters



(Dollars in thousands)	December 31,		December 31,
GE Covenants	2013		2013
After dividend consolidated fixed charge	Requirement		Calculation
coverage ratio calculated as follows: *	≥ 1.00:1
Adjusted EBITDA (A) / Fixed charges (B)
Net loss per financial statements		$	(1,353)
Net adjustments per loan agreement			12,398
Adjusted EBITDA per loan agreement (A)		$	11,045

Interest expense per financial statements -
continuing operations			6,421
Interest expense per financial statements -
discontinued operations			3,020
Total interest expense per financial statements		$	9,441

Net adjustments per loan agreement			4,796
Fixed charges per loan agreement (B)		$	14,237
After dividend consolidated fixed charge coverage ratio			0.78:1
* Calculations based on prior four quarters

As of December 31, 2013, the Company was not in compliance with the GE before dividend consolidated fixed charge coverage ratio (FCCR) and the GE after dividend consolidated FCCR, but obtained waivers from GE as discussed further below.

Prior to the amendment discussed below, the financial covenants under our loan facilities with GE required that, through the term of the loans, we maintain: (a) a minimum before dividend FCCR with respect to our GE-encumbered properties (based on a rolling 12-month period) of 1.30:1; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 72.2% as of December 31, 2013, which requirement decreases periodically thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 1.20:1 as of December 31, 2013, which requirement increases periodically thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 1.00:1.

As of December 31, 2013, our before dividend FCCR with respect to our GE-encumbered properties (as defined in the loan agreement) was 1.30:1, our before dividend consolidated FCCR (as defined in the loan agreement) was 1.01:1 and our after dividend consolidated FCCR (as defined in the loan agreement) was 0.78:1. Further, the Company does not currently project that it will be able to satisfy these covenants as of March 31, 2014. On March 14, 2014, the Company received a waiver for non-compliance with these covenants as of December 31, 2013 and March 31, 2014.

In connection with the waiver, our loan facilities with GE were also amended to require that, through the term of the loans, we maintain: (a) a minimum before dividend FCCR with respect to our GE-encumbered properties (based on a rolling 12-month period) of 1.10:1 as of June 30, 2014, which requirement increases periodically thereafter to 1.20:1 as of December 31, 2014; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 70% as of June 30, 2014, which requirement decreases periodically thereafter to 60% as of December 31, 2014; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.70:1 as of June 30, 2014, which requirement increases periodically thereafter to 1.00:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of June 30, 2014, which requirement increases periodically thereafter to 1.00:1 as of December 31, 2014.

The GE amendment, among other things, also: (a) provides that the consolidated FCCRs are not required to be tested as of the end of any fiscal quarter if the loan to value ratio with respect to our GE-encumbered properties is 60% or less; (b) implements changes beneficial to the Company regarding release of collateral, prepayment fees and loan reamortizations; (c) requires that any variable rate loans remaining outstanding as of December 31, 2014 be converted to fixed rate loans bearing interest at 4.75%; and (d) requires payment of a $380,000 modification fee.

If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our Great Western Bank and GE facilities contain cross-default provisions which would allow Great Western Bank and GE to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. We are not in default of any of our loans.

At December 31, 2013, we had long-term debt of $93.9 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 2.8 years and a weighted average interest rate of 6.2%. The weighted average fixed rate was 6.4%, and the weighted average variable rate was 3.9%. Debt is classified as held for use if the properties collateralizing it are included in continuing operations. Debt is classified as held for sale if the properties collateralizing it are included in discontinued operations. Debt associated with assets held for sale is classified as a short-term liability due within the next year irrespective of whether the notes and mortgages evidencing such debt mature within the next year. Aggregate annual principal payments on debt associated with assets held for use for the next five years and thereafter, and debt associated with assets held for sale, are as follows:



	Held For Sale		Held For Use		TOTAL
2014	$	24,120	$	14,244	$	38,364
2015		0		24,819		24,819
2016		0		4,794		4,794
2017		0		42,975		42,975
2018		0		7,093		7,093
Thereafter		0		0		0
	$	24,120	$	93,925	$	118,045

At December 31, 2013, we had $38.4 million of principal due in 2014. Of this amount, $31.5 million of the principal due is associated with either assets held for use or assets held for sale, and matures in 2014 pursuant to the notes and mortgages evidencing such debt. The remaining $6.9 million is associated with assets held for sale and is not contractually due in 2013 unless the related assets are sold. The maturities comprising the $31.5 million consist of:

an $11.0 million balance on a revolving line of credit with Great Western Bank;

a $15.5 million balance on a mortgage loan with GE Capital Franchise Finance LLC (“GE”);

a $1.8 million balance on a mortgage loan with GE; and

approximately $3.2 million of principal amortization on mortgage loans.

We believe the debt with Great Western Bank will be refinanced with Great Western Bank on acceptable terms. The seven hotels securing the loans with GE are held for sale, and if sold, we believe that the net proceeds from the sale of the hotels would be sufficient to satisfy the debt with GE. Alternatively, the Company believes it will be able to refinance the debt with GE on acceptable terms if the hotels are not sold.