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 June 30, 2018 and December 31, 2017:


Lender		Balance at June 30, 2018	Interest rate at June 30, 2018	Maturity	Amortization provision	Properties encumbered at June 30, 2018		Balance at December 31, 2017
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18	$	8,903	4.54%	08/2024	25 years	1	$	8,987
Great Western Bank (1)		13,814	4.33%	12/2021 (5)	25 years	1		13,950
Great Western Bank (1)		1,294	4.33%	12/2021 (5)	7 years	-		1,380
Total fixed rate debt		24,011						24,317

Variable rate debt
Wells Fargo		26,257	4.37% (2)	11/2022 (6)	30 years	3		26,465
KeyBank credit facility (3)		94,318	5.06% (4)	03/2020 (7)	Interest only	12		73,303
Total variable rate debt		120,575				17		99,768

Total Long-term debt	$	144,586					$	124,085
Less: Deferred financing costs		(2,934)						(3,504)
Total long-term debt, net of deferred financing costs		141,652						120,581
Less: Long-term debt related to hotel properties held for sale, net of deferred financing costs of $51 and $279		(2,352)						(7,960)
Long-term debt related to hotel properties held for use, net of deferred financing costs of $2,883 and $3,225	$	139,300					$	112,621

(1) Both loans are collateralized by Aloft Leawood.

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

(3) $150,000 credit facility that includes an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. Available borrowing capacity under the credit facility is based on a borrowing base formula for the pool of hotel properties securing the facility. Total unused availability under this credit facility was $5,747 at June 30, 2018. The 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).

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

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

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

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 2018 and thereafter are as follows:


	Held for sale		Held for use		Total
Remainder of 2018	$	-	$	570	$	570
2019		-		1,183		1,183
2020		2,403		93,146		95,549
2021		-		14,344		14,344
2022		-		24,886		24,886
Thereafter		-		8,054		8,054
Total	$	2,403	$	142,183	$	144,586

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%. Commencing on March 31, 2019, 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.

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 June 30, 2018, we are not in default of any of our loans.