NOTE 6. LONG-TERM DEBT

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



Lender	Balance at December 31, 2017		Interest rate at December 31, 2017	Maturity	Amortization provision	Properties encumbered at December 31, 2017	Balance at December 31, 2016
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18	$	8,987	4.54%	08/2024	25 years	1	$	-
Great Western Bank (1)		13,950	4.33%	12/2021 (13)	25 years	1		14,326
Great Western Bank (1)		1,380	4.33%	12/2021 (13)	7 years	-		1,599
Western Alliance Bank		-	(2)	02/2017	15 years	-		4,806
Western Alliance Bank		-	(3)	02/2018	15 years	-		2,803
Cantor Commercial Real Estate Lending		-	(4)	11/2017	30 years	-		5,713
Morgan Stanley Mortgage Capital Holdings, LLC		-	(5)	12/2017	25 years	-		912
Total fixed rate debt		24,317						30,159

Variable rate debt
Wells Fargo		26,465	4.44% (6)	11/2022 (14)	30 years	3		-
KeyBank credit facility (7)		73,303	4.55% (8)	03/2020 (15)	Interest only	12		-
Western Alliance Bank		-	(9)	11/2020	25 years	-		4,882
Western Alliance Bank		-	(9)	11/2020	25 years	-		9,863
The Huntington National Bank		-	(10)	11/2020	25 years	-		7,361
LMREC 2015 - CREI, Inc. (Latitude)		-	(11)	05/2018	$12 monthly (12)	-		11,124
Total variable rate debt		99,768				17		33,230

Total long-term debt	$	124,085					$	63,389
Less: Deferred financing costs		(3,504)						(669)
Total long-term debt, net of deferred financing costs		120,581						62,720
Less: Long-term debt related to hotel properties held for sale, net of deferred financing costs of $174 and $168		(4,976)						(14,802)

Long-term debt related to hotel properties held for use, net of deferred financing costs of $3,330 and $501	$	115,605					$	47,918

(1) Both loans are collateralized by Aloft Leawood

(2) Fixed rate of 7.17% prior to extinguishment with origination of credit facility on March 1, 2017

(3) Fixed rate of 4.75% prior to extinguishment with origination of credit facility on March 1, 2017

(4) Fixed rate of 4.25% prior to extinguishment with origination of credit facility on March 1, 2017

(5) Fixed rate of 5.83% prior to extinguishment with origination of credit facility on March 1, 2017

(6) Variable rate of 30-day LIBOR plus 2.39%, effectively fixed at 4.44% after giving effect to interest rate swap (see Note 8)

(7) Total unused availability under this credit facility was $11,934 at December 31, 2017; commitment fee on unused facility is 0.20%

(8) 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 effectively capped at 2.5% after giving effect to interest rate cap (see Note 8)

(9) Variable rate of 90-day LIBOR plus 3.25% prior to extinguishment with origination of Wells Fargo debt on October 4, 2017

(10) Variable rate of 30-day LIBOR plus 2.25%, effectively fixed at 4.13% after giving effect to interest rate swap (see Note 8) prior to extinguishment with origination of credit facility on March 1, 2017

(11) Variable rate of 30-day LIBOR plus 6.25%, 30-day LIBOR capped at 1.0% after giving effect to interest rate cap (see Note 8) prior to extinguishment with origination of credit facility on March 1, 2017

(12) $12 monthly payments began May 2016

(13) Term may be extended for additional two years subject to interest rate adjustments

(14) Two one-year extension options subject to the satisfaction of certain conditions

(15) Two one-year extension options available subject to certain conditions including the completion of specific capital achievements

At December 31, 2017, we had long-term debt of $118,935 associated with assets held for use with a weighted average term to maturity of 3.2 years and a weighted average interest rate of 4.50%. Of this total, at December 31, 2017, $24,317 was fixed rate debt with a weighted average term to maturity of 2.4 years and a weighted average interest rate of 4.41% and 94,618 was variable rate debt with a weighted average term to maturity of 4.1 years and a weighted average interest rate of 4.52%. At December 31, 2016, we had long-term debt of $48,419 associated with assets held for use with a weighted average term to maturity of 3.2 years and a weighted average interest rate of 4.94%. Of this total, at December 31, 2016, $22,550 was fixed rate debt with a weighted average term to maturity of 3.7 years and a weighted average interest rate of 4.41% and $25,869 was variable rate debt with a weighted average term to maturity of 2.8 years and a weighted average interest rate of 5.39%.

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 next five years and thereafter are as follows:



	Held for sale		Held for use		Total
2018	$	-	$	1,083	$	1,083
2019		-		1,183		1,183
2020		5,150		69,385		74,535
2021		-		14,344		14,344
2022		-		24,886		24,886
Thereafter		-		8,054		8,054
Total	$	5,150	$	118,935	$	124,085

Financial Covenants

We are required to satisfy various financial covenants within our debt agreements, including the following financial covenants within our credit facility:

Leverage Ratio: The ratio of consolidated total indebtedness to consolidated total asset value cannot exceed 60%. When the first extension option becomes effective, the foregoing leverage ratio will no longer be applicable, and in lieu thereof, the ratio of consolidated total indebtedness to adjusted consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the most recently ended four fiscal quarters cannot exceed 6.25 to 1.

Secured Leverage Ratio: The ratio of consolidated secured indebtedness (excluding the credit facility) to consolidated total asset value cannot exceed 40%.

Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA for the most recently ended four fiscal quarters to consolidated fixed charges for the most recently ended four fiscal quarters cannot be less than 1.50 to 1.

Tangible Net Worth: Consolidated tangible net worth cannot be less than $55 million plus 80% of net offering proceeds.

Unhedged Variable Rate Debt: Consolidated unhedged variable rate debt cannot exceed 25% of consolidated total asset value.

Distributions: The Company is permitted to make distributions during any period of four fiscal quarters in an aggregate amount of up to 95% of funds available for distribution.

Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility have the meanings given to them in the credit facility, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.

As of December 31, 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 December 31, 2017, we are not in default of any of our loans.