Note 7. Long-Term Debt

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


	2014	2013
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 4.95% per annum. On August 1, 2014, the maturity was extended to June 30, 2015, and the interest rate was lowered to 4.50%.	$7,885	$ 11,037

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%. This note was paid in full on January 15, 2015.	$ 1,425	$ 7,074

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%. The note was paid in full on May 6, 2014.	$0	$ 1,182

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.	$ 11,869	$ 12,280

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%. On March 14, 2014, the loan was amended to convert the variable rate to fixed at 4.75% beginning on December 31, 2014.	$ 4,057	$ 4,321

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 December 31, 2014 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%. On December 30, 2014, the maturity date was extended to March 2, 2015. On February 17, 2015, the maturity date was further extended to December 15, 2015.The rate as of December 31, 2014 was 7.17%.	$ 10,667	$ 15,510

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 was 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, 2014 was 7.17%.	$ 11,335	$ 11,815

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 December 31, 2014 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 loan was paid in full on August 21, 2014.	$ 0	$ 1,819

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 loan was paid in full on October 15, 2014.	$ 0	$ 2,934

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 loan was paid in full on June 6, 2014.	$ 0	$ 2,122

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 5.5%. Monthly principal and interest payments are due through maturity, with the balance of the loan payable on June 15, 2016.	$ 2,583	$ 2,759

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.	$ 28,630	$ 29,655

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.	$ 5,936	$ 6,041

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. The loan was paid in full on June 23, 2014.	$ 0	$ 1,196

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	$ 8,300

Total Debt	$ 92,687	$ 118,045

The long-term debt is secured by 56 and 68 of the Company’s hotel properties, as of December 31, 2014 and 2013, 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, 2014 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2014, we were in compliance with our financial covenants. As a result, at December 31, 2014, we are not in default under the terms of any of our loans.



	December 31,		December 31,
Great Western Bank Covenants	2014		2014
Consolidated debt service coverage ratio	Requirement		Calculation
calculated as follows: *	≥1.05:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements		$	(16,259)
Net adjustments per loan agreement			32,326
Adjusted NOI per loan agreement (A)		$	16,067

Interest expense per financial statements -
continuing operations			7,177
Interest expense per financial statements -
discontinued operations			1,357
Total interest expense per financial statements		$	8,534

Net adjustments per loan agreement			1,441
Debt service per loan agreement (B)		$	9,975

Consolidated debt service coverage ratio			1.61 : 1
* Calculations based on prior four quarters



	December 31,		December 31,
Great Western Bank Covenants	2014		2014
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		$	(16,259)
Net adjustments per loan agreement			18,088
Adjusted NOI per loan agreement (A)		$	1,829

Interest expense per financial statements -
continuing operations			7,177
Interest expense per financial statements -
discontinued operations			1,357
Total interest expense per financial statements		$	8,534

Net adjustments per loan agreement			(7,459)
Debt service per loan agreement (B)		$	1,075

Loan-specific debt service coverage ratio			1.70 : 1
* Calculations based on prior four quarters



	December 31,		December 31,
Great Western Bank Covenants	2014		2014
Consolidated loan to value ratio	Requirement		Calculation
calculated as follows:	70.0%
Loan balance (A) / Value (B)
Loan balance (A)		$	92,687
Value (B)		$	195,646
Consolidated loan to value ratio			47.4	%



	December 31,		December 31,
Great Western Bank Covenants	2014		2014
Loan-specific loan to value ratio	Requirement		Calculation
calculated as follows:	70.0%
Loan balance (A) / Value (B)
Loan balance (A)		$	9,311
Value (B)		$	26,063
Loan-specific loan to value ratio			35.7	%



	December 31,		December 31,
Great Western Bank Covenants	2014		2014
Consolidated leverage ratio	Requirement		Calculation
calculated as follows:	≤ 3.50
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements		$	119,691
Net adjustments per loan agreement			(20,337)
Total liabilities per loan agreement (A)		$	99,354

Total assets per financial statements		$	146,444

Total liabilities per financial statements		$	119,691
Net adjustments per loan agreement			(20,337)
Total liabilities per loan agreement		$	99,354

Tangible net worth per loan agreement (B)		$	47,090

Consolidated Leverage Ratio			2.11

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 a term loan in the original principal amount of $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 remaining term loan 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. After the remaining term loan is repaid, the $12.5 million of availability under the revolving credit facility will be reduced by the amount of net proceeds from sales of hotels encumbered by Great Western Bank. At December 31, 2014, the revolving credit facility was fully available and the outstanding balance was $7.9 million.



	December 31,		December 31,
GE Covenants	2014		2014
Loan-specific fixed charge coverage ratio	Requirement		Calculation
calculated as follows: *	≥ 1.20:1
Adjusted EBITDA (A) / Fixed charges (B)
Net loss per financial statements		$	(16,259)
Net adjustments per loan agreement			20,854
Adjusted EBITDA per loan agreement (A)		$	4,595

Interest expense per financial statements -
continuing operations			7,177
Interest expense per financial statements -
discontinued operations			1,357
Total interest expense per financial statements		$	8,534

Net adjustments per loan agreement			(5,161)
Fixed charges per loan agreement (B)		$	3,373
Loan-specific fixed charge coverage ratio			1.36 : 1
* Calculations based on prior four quarters



	December 31,		December 31,
GE Covenants	2014		2014
Loan-specific loan to value ratio	Requirement		Calculation
calculated as follows:	≤ 60.0%
Loan balance (A) / Value (B)
Loan balance (A)		$	26,059

Value (B)		$	43,790

Loan-specific loan to value ratio			59.5	%

The financial covenants under our loan facilities with GE also require that, through the term of the loans, we maintain: (a) a minimum before dividend consolidated fixed charge coverage ratio (FCCR) (based on a rolling 12-month period) of 1.00:1 as of December 31, 2014 and thereafter; and (b) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 1.00:1 as of December 31, 2014 and thereafter. However, 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. As of December 31, 2014 our loan to value ratio with respect to our GE encumbered properties was 59.5%. As a result, our consolidated FCCRs are not required to be tested as of December 31, 2014. While the consolidated FCCRs were not required to be tested, the Company’s FCCRs were in compliance with the required threshold.

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, 2014, we had long-term debt of $74.3 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 2.0 years and a weighted average fixed interest rate of 6.5%. The Company has no variable interest rate loans as of December 31, 2014. Debt is classified as held for use if the properties collateralizing it are not held for sale. Debt is classified as held for sale if the properties collateralizing it are held for sale. Debt associated with assets held for sale is classified in the table below as 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
2015	$	18,410	$	28,462	$	46,872
2016		0		2,124		2,124
2017		0		42,693		42,693
2018		0		998		998
2019		0		0		0
Thereafter		0		0		0
	$	18,410	$	74,277	$	92,687

At December 31, 2014, we had $46.9 million of principal due in 2015. Of this amount, 42.1 million of principal is due in 2015 pursuant to the notes and mortgages evidencing such debt. The remaining $4.8 million is associated with loans on assets held for sale and is not contractually due in 2015 unless the related assets are sold. The maturities comprising the $42.1 million consist of:

a $10.7 million balance on a mortgage loan with GE Capital Franchise Finance LLC (“GE”);

a $7.9 million balance on a revolving line of credit with Great Western Bank;

a $1.4 million balance on a term loan with Great Western Bank;

an $8.3 million balance on a mortgage loan with Middle Patent Capital, LLC;

a $11.9 million balance on a mortgage loan with Citigroup Global Markets Realty Corp.; and

approximately $1.9 million of principal amortization on mortgage loans.

The maturity date on the $10.7 million GE loan has been extended to December 15, 2015 and a required principal payment of $0.3 million was paid on the loan in February, 2015. All of the GE loans are cross collateralized and the 15 assets securing the loans outstanding at December 31, 2014 are treated as a pool. As of December 31, 2014, the Company has eight GE hotel assets classified as held for sale. The required principal payment upon the sale of these eight hotels is approximately $14.2 million. If these hotels are sold, the Company believes the net proceeds from the sale of these hotels will be sufficient to make this principal payment and thereby satisfy the debt with GE maturing in 2015. If the hotels are not sold, the Company will attempt to refinance the debt with GE.

The Company’s plan is to refinance the other debt maturing in 2015 with current or future lenders.