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, 2018		Interest rate at December 31, 2018	Maturity	Amortization provision	Properties encumbered at December 31, 2018	Balance at December 31, 2017
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18	$	8,817	4.54%	08/2024	25 years	1	$	8,987
Great Western Bank (1)		13,615	4.33%	12/2021 (5)	25 years	1		13,950
Great Western Bank (1)		1,171	4.33%	12/2021 (5)	7 years	-		1,380
Total fixed rate debt		23,603						24,317

Variable rate debt
Wells Fargo		26,048	4.74% (2)	11/2022 (6)	30 years	3		26,465
KeyBank credit facility (3)		89,487	5.47% (4)	03/2020 (7)	Interest only	10		73,303
Total variable rate debt		115,535				15		99,768

Total long-term debt	$	139,138					$	124,085
Less: Deferred financing costs		(2,208)						(3,504)
Total long-term debt, net of deferred financing costs		136,930						120,581
Less: Long-term debt related to hotel properties held for sale, net of deferred financing costs of $18 and $333		(1,120)						(9,484)

Long-term debt related to hotel properties held for use, net of deferred financing costs of $2,190 and $3,171	$	135,810					$	111,097

(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 $7,424 at December 31, 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. On March 8, 2019, the credit facility was amended to extend its maturity date to April 1, 2020. Prior to this date, the Company anticipates refinancing the credit facility with its existing lenders or other lenders. The Company believes it will be able to refinance this debt on similar terms, however, we cannot guarantee we will be successful in our efforts to refinance or repay this maturity debt.

At December 31, 2018, we had long-term debt of $138,000 associated with assets held for use with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 5.15%. Of this total, at December 31, 2018, $23,604 was fixed rate debt with a weighted average term to maturity of 1.9 years and a weighted average interest rate of 4.41% and $114,396 was variable rate debt with a weighted average term to maturity of 2.9 years and a weighted average interest rate of 5.30%. At December 31, 2017, we had long-term debt of $114,269 associated with assets held for use with a weighted average term to maturity of 3.2 years and a weighted average interest rate of 4.34%. 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 $89,952 was variable rate debt with a weighted average term to maturity of 4.1 years and a weighted average interest rate of 4.32%.

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
2019	$	-	$	1,136	$	1,136
2020		1,138		89,580		90,718
2021		-		14,344		14,344
2022		-		24,886		24,886
2023		-		214		214
Thereafter		-		7,840		7,840
Total	$	1,138	$	138,000	$	139,138

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 April 1, 2020, 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 a result of ongoing renovations at the Aloft Leawood property, the Company did not meet its required quarterly debt service coverage ratio on that property-specific debt at December 31, 2018. On March 8, 2019 Great Western Bank waived the required quarterly debt service coverage ratio for the collateralized debt of the Leawood Aloft for December 31, 2018 and March 31, 2019, and modified the required ratio for subsequent periods.

As of December 31, 2018, we are not in default of any of our loans.