NOTE 6. LONG-TERM DEBT

On March 1, 2017, a significant portion of the Company’s debt (including all debt outstanding at December 31, 2016 with the exception of the two variable rate Western Alliance Bank loans and the two fixed rate Great Western Bank loans) was refinanced with the credit facility that matures on March 1, 2020. The credit agreement was entered into with KeyBank National Association, as administrative agent and lender, KeyBanc Capital Markets Inc. and The Huntington National Bank, as joint leader arrangers, and other lenders and agents party thereto.

The original credit agreement provided for a $90,000 senior secured credit facility and includes an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. On May 11, 2017, the Company closed on an increase in the credit facility from $90,000 to $150,000 with the credit facility continuing to retain its $400,000 accordion feature. Available borrowing capacity under the credit facility is based on a borrowing base formula for the pool of hotel properties securing the facility. As of the closing date, the collateral pool consisted of 14 hotel properties and total available borrowing capacity under the credit facility was $41,050. At September 30, 2017, following the purchases and sales of hotels subsequent to March 1, 2017 (see Notes 3 and 5) and the common stock equity raise (see Note 9), the collateral pool consisted of 14 hotel properties and total available borrowing capacity under the credit facility was $98,170. At September 30, 2017, $89,861 was outstanding under the credit facility.

The credit facility is guaranteed by the Company and its material subsidiaries that do not have stand-alone financing. Borrowings under the credit facility accrue interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage). The credit facility matures in March 2020 and has two one-year extension options, subject to certain conditions, including the completion of specific capital achievements. The credit facility contains customary representations and warranties, covenants, and events of default.

Upon the closing of the credit facility, $34,250 was immediately drawn down to repay existing debt and related expenses. Prior to September 30, 2017, net proceeds from the Company’s hotel sales (see Note 5) were used to pay down a total of $20,639 on the credit facility, proceeds from the credit facility totaling $113,250 were used to fund the Company’s acquisitions plus related expenses (see Note 3), and a portion of the proceeds from the Company’s common stock offering totaling $37,000 (see Note 9) was used to pay down the credit facility.

Long-term debt related to wholly owned properties, including debt related to hotel properties held for sale, consisted of the following loans payable at September 30, 2017 and December 31, 2016:


Lender		Balance at September 30, 2017	Interest rate at September 30, 2017	Maturity	Amortization provision	Properties encumbered at September 30, 2017		Balance at December 31, 2016
Fixed rate debt
Great Western Bank (1)	$	14,064	4.33%	12/2021	25 years	1	$	14,326
Great Western Bank (1)		1,448	4.33%	12/2021	7 years	-		1,599
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18		9,029	4.54%	08/2024	25 years	1		-
Western Alliance Bank		-	-	-	-	-		4,806
Western Alliance Bank		-	-	-	-	-		2,803
Cantor Commercial Real Estate Lending		-	-	-	-	-		5,713
Morgan Stanley Mortgage Capital Holdings, LLC		-	-	-	-	-		912
Total fixed rate debt		24,541						30,159

Variable rate debt
Western Alliance Bank		4,797	4.55% (2)	11/2020	25 years	1		4,882
Western Alliance Bank		9,695	4.55% (2)	11/2020	25 years	1		9,863
KeyBank credit facility (3)		89,861	3.74% (4)	03/2020	Interest only	14		-
The Huntington National Bank		-	-	-	-	-		7,361
LMREC 2015 - CREI, Inc. (Latitude)		-	-	-	-	-		11,124
Total variable rate debt		104,353				18		33,230

Total long-term debt	$	128,894					$	63,389
Less: Deferred financing costs		(3,218)						(669)
Total long-term debt, net of deferred financing costs		125,676						62,720
Less: Long-term debt related to hotel properties held for sale, net of deferred financing costs of $233 and $168		(7,289)						(14,802)
Long-term debt related to hotel properties held for use, net of deferred financing costs of $2,985 and $501	$	118,387					$	47,918

(1) Both loans are collateralized by Aloft Leawood

(2) 90-day LIBOR plus 3.25%

(3) Total unused availability under this credit facility was $8,309 at September 30, 2017; commitment fee on unused facility is 0.20%

(4) Borrowings under the facility accrue interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage); 30-day LIBOR for $50,000 notional capped at 2.5% after giving effect to market rate cap (see Note 8)

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 based on its contractual maturity although the balances are expected to be repaid within one year upon the sale of the related hotel properties. Aggregate annual principal payments on debt for the remainder of 2017 and thereafter are as follows:



	Held for sale		Held for use		Total
Remainder of 2017	$	-	$	255	$	255
2018		-		1,043		1,043
2019		-		1,091		1,091
2020		7,522		96,857		104,379
2021		-		13,868		13,868
Thereafter		-		8,258		8,258
Total	$	7,522	$	121,372	$	128,894

Financial Covenants

The Company’s debt agreements contain requirements as to the maintenance of minimum levels of debt service and fixed charge coverage, required loan-to-value and leverage ratios, required levels of tangible net worth, and place certain restrictions on dividends. As of September 30, 2017, we were in compliance with our financial covenants.

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 credit facility contains cross-default provisions which would allow the lenders under our credit facility 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. As of September 30, 2017, we are not in default of any of our loans.