Debt Financing

A summary of the Company’s long term debt as of June 30, 2014 is as follows (dollars in thousands):



			Interest
Fixed Rate Debt	Balance		Rate		Maturity

Lender
Great Western Bank *	$	8,944	4.50	%	6/2014
GE Franchise Finance Commercial LLC		17,014	7.17	%	12/2014
Citigroup Global Markets Realty Corp		12,076	5.97	%	11/2015
Great Western Bank		4,835	5.00	%	6/2015
Trevian Capital		8,300	12.50	%	6/2015
Elkhorn Valley Bank		2,672	5.50	%	6/2016
GE Franchise Finance Commercial LLC		11,578	7.17	%	2/2017
Cantor		5,989	4.25	%	11/2017
Morgan Stanley		29,148	5.83	%	12/2017
Total fixed rate debt	$	100,556

Variable Rate Debt

Lender
GE Franchise Finance Commercial LLC		4,853	3.73	%	2/2018
Total variable rate debt	$	4,853

Subtotal debt		105,409

Less: debt associated with hotel properties held for sale		23,666

Total long-term debt	$	81,743

* As discussed below, this debt agreement was amended August 1, 2014, and the maturity was extended to June 30, 2015.

On January 9, 2014, the Company entered into an unsecured convertible loan agreement with RES, whereby the Company may borrow up to $2.0 million from time to time in revolving loans, subject to the conditions therein. During the first quarter, the Company borrowed the full amount of $2.0 million available under the loan agreement. On June 11, 2014, the effective purchase date, the loan was converted and used to purchase 1,250,000 shares of common stock in a subscription rights offering by the Company. See “Convertible Loan” above. Per the loan agreement the annual interest rate increased from variable at LIBOR plus 700 basis points to a 12.5% fixed rate back to the origination date of the loan because the subscription rights offering was not completed by April 15, 2014.

On March 10, 2014 the Company sold a Super 8 in Shawano, Wisconsin (55 rooms) for gross sale proceeds of $1.1 million. Proceeds were used to pay off the associated loan and reduce the balance of the revolving credit facility with Great Western Bank.

On March 14, 2014, we received a waiver from GE Franchise Finance Commercial LLC (“GE”) for non-compliance with covenants, as formulated at that time, with respect to our before dividend fixed charge coverage ratio (FCCR) covenant with respect to our GE-encumbered properties (actual of 1.25:1 versus requirement of 1.30:1), our before dividend consolidated FCCR covenant (actual of 0.98:1 versus requirement of 1.20:1), and our after dividend consolidated FCCR covenant (actual of 0.84:1 versus requirement of 1.00:1) in each case, as of March 31, 2014.

The financial covenants under our loan facilities with GE 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 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 0.70:1 as of June 30, 2014, which requirement increases periodically thereafter to 1.00:1 as of December 31, 2014.

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. The required payment of a $380,000 modification fee for amendments to our loan facilities with GE in connection with the waiver we received on March 14, 2014 was paid on June 27, 2014.

On April 24, 2014, the Company sold a Baymont Inn in Brooks, Kentucky (65 rooms) for gross sale proceeds of $1.7 million. Proceeds were used to pay down debt with GE.

On May 6, 2014, the Company sold a Super 8 in Omaha, Nebraska (West Dodge) (101 rooms) for gross sale proceeds of $1.6 million. Proceeds were used to pay down the associated term loan with Great Western Bank.

On June 4, 2014, the Company sold a Super 8 in Boise, Idaho (108 rooms) for gross sale proceeds of $2.8 million. Proceeds were used to pay down the associated debt with GE.

On June 11, 2014, the Company sold a Super 8 in Clarinda, Iowa (40 rooms) for gross sale proceeds of $1.7 million. Proceeds were used to pay down the associated debt with Great Western Bank.

On June 23, 2014, the Company sold a Super 8 in Norfolk, Nebraska (64 rooms) for gross sale proceeds of $1.4 million. Proceeds were used to pay down the associated debt with First State Bank.

At June 30, 2014, the Company had long-term debt of $81.7 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 6.4%. The weighted average fixed rate was 6.5%, and the weighted average variable rate was 3.7%. 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 remainder of 2014 and thereafter, and debt associated with assets held for sale, are as follows (in thousands):



	Held For Sale		Held For Use		TOTAL
Remainder of 2014	$	23,666	$	10,427	$	34,093
2015		0		24,179		24,179
2016		0		4,685		4,685
2017		0		40,846		40,846
2018		0		1,606		1,606
Thereafter		0		0		0
	$	23,666	$	81,743	$	105,409

At June 30, 2014, the Company had $34.1 million of principal due in 2014. Of this amount, $27.4 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 $6.7 million is associated with assets held for sale and is not contractually due in 2014 unless the related assets are sold. The maturities comprising the $27.4 million consist of:

an $8.9 million balance on the revolving credit facility with Great Western Bank;

a $14.6 million balance on a mortgage loan with GE;

a $2.4 million balance on a mortgage loan with GE; and

approximately $1.5 million of principal amortization on mortgage loans.

On August 1, 2014, the Company refinanced the debt with Great Western Bank to a maturity date of June 30, 2015. 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. If the hotels are not sold, the Company will attempt to refinance the debt with GE or some other lender. If we are unable to refinance our GE debt, we may be forced to sell the hotels on disadvantageous terms which could compel us to file for reorganization.

We are required to comply with certain financial covenants for some of our lenders. As of June 30, 2014, we were in compliance with our financial covenants. As a result, we are not in default of any of our loans.