Note 7. Long-Term Debt

Long-term debt consisted of the following notes and mortgages payable at December 31:


	2011		2010
Mortgage loan payable to Greenwich Capital Financial Products, Inc. ("Greenwich"), evidenced by a promissory note dated November 26, 2002, in the amount of $40 million. The note bears interest at 7.50% per annum. Monthly principal and interest payments are payable through maturity on December 1, 2012, at which point the remaining principal and accrued interest are due.	$	29,406	$	30,972

Revolving credit facility from Great Western Bank, previously evidenced by a promissory note dated December 3, 2008. The revolving line of credit had a limit of $20 million with interest payable monthly. On December 9, 2011, the facility was refinanced into a $12.5 million revolving credit facility and a $7.5 million mortgage loan (see below). The facility bears interest at 5.95% per annum. On February 21, 2012, the maturity was extended to June 30, 2013.	$	10,443	$	15,793


	2011		2010
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 bears interest at 6% 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 February 21, 2012, the maturity was extended to June 30, 2013.	$	7,500	$	0

Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 3, 2008, in the amount of $14 million. The note bears interest at 6% 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 February 21, 2012, the maturity was extended to June 30, 2013.	$	9,830	$	11,832

Mortgage loan payable to Great Western Bank evidenced by a promissory note dated May 5, 2009, in the amount of $10 million. The note bears interest at 6% 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 February 21, 2012, the maturity was extended to June 30, 2013.	$	9,244	$	9,551

Credit facility from Wells Fargo Bank for up to $12 million, previously evidenced by a promissory note dated September 28, 2007. The note was modified on March 16, 2009 to reduce the amount available for borrowing to $9.5 million and eliminate the revolving feature. The note was sold to Fredericksburg North Investors, LLC on November 21, 2011. The note bears interest at 10% per annum and requires the outstanding principal and interest to be paid in full on May 31, 2012. The note was paid in full on February 16, 2012.	$	2,120	$	5,294

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.	$	13,030	$	13,373

Mortgage loan payable to General Electric Capital Corporation ("GECC") 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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,806	$	5,268

Mortgage loan payable to GECC 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 September 1, 2016 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	16,343	$	16,718


	2011		2010
Mortgage loan payable to GECC 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 is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	12,674	$	13,061

Mortgage loan payable to GECC 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 March 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	3,173	$	3,239

Mortgage loan payable to GECC evidenced by a promissory note dated May 16, 2007, in the amount of $27.8 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 June 1, 2017, when the remaining principal balance is due. The principal amount owing on this loan includes $1.09 million of prepayment fees related to principal prepayments required in connection with hotel sales. GECC has agreed to forbear from requiring payment of such prepayment fees until December 31, 2012. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.69%.	$	13,562	$	20,994

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.5 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,481	$	1,597

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.8 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.2 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,629	$	1,756

Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $4.2 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $3.3 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	2,478	$	2,671


	2011		2010
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $5.1 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $4.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	3,024	$	3,260

Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $6.8 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	6,460	$	6,709

Mortgage Loan payable to GECC 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 200 basis points (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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	3,228	$	3,352

Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $1.1 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	1,050	$	1,091

Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008 in the amount of $4.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,159	$	4,319

Mortgage Loan payable to GECC evidenced by a promissory note dated January 31, 2008 in the amount of $2.5 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 256 basis points (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 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.59%.	$	2,363	$	2,449


	2011		2010
Mortgage Loan payable to Elkhorn Valley Bank evidenced by a promissory note, dated March 19, 2009, in the amount of $1.0 million. The note bears interest at 6.5%. Monthly principal and interest payments are due through March 2014, with the balance of the loan payable on April 1, 2014. On September 30, 2011, the balance of the loan was paid in full with proceeds from the sale of the corporate office building.	$	0	$	871

Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated September 20, 2011, in the amount of $0.96 million. The note bears interest at 5.75%. Monthly principal and interest payments are due through September 2013, with the balance of the loan payable on September 15, 2013.	$	943	$	0

Mortgage Loan payable to First National Bank of Omaha evidenced by a promissory note dated January 26, 2010, in the amount of $0.8 million. The note bears interest at the one month London Interbank Offered Rate plus 4.0 percentage points with a 5.0% floor. The rate as of December 31, 2011 was 5.0%. Monthly interest payments are due through maturity, with the balance of the loan due on the maturity date. On March 1, 2012, the maturity of the note was extended to May 1, 2012.	$	840	$	840

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 6.25%. Monthly principal and interest payments are due through June 2016, with the balance of the loan payable on June 15, 2016.	$	3,059	$	0

Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated November 9, 2011, in the amount of $5.0 million. The note bears interest at 5.75%. Monthly interest payments are due through June 2012, with the balance of the loan payable on June 1, 2012. The loan was paid in full on February 3, 2012.	$	3,000	$	0


Total Debt	$	165,845	$	175,010

The long-term debt is secured by 100 and 106 of the Company's hotel properties, as of December 31, 2011 and 2010, respectively. The Company's debt agreements contain requirements as to the maintenance of minimum EBITDA levels, minimum levels of debt service and fixed charge coverage and required loan-to-value ratios and net worth, and place certain restrictions on distributions.

The key financial covenants for certain of our loan agreements and compliance calculations as of December 31, 2011 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2011, we were either in compliance with the financial covenants or obtained waivers for non-compliance (as discussed below). As a result, we are not in default of any of our loans.


Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation

Consolidated debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				37,433

Adjusted NOI per loan agreement (A)			$	19,956


Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717

Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				6,215

Debt service per loan agreement (B)			$	18,617


Consolidated debt service coverage ratio				1.07:1

*	Calculations based on prior four quarters


Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation

Loan-specific debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				21,105

Adjusted NOI per loan agreement (A)			$	3,628


Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717

Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				(8,885	)

Debt service per loan agreement (B)			$	3,517


Loan-specific debt service coverage ratio				1.03:1

*	Calculations based on prior four quarters


Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation

Consolidated leverage ratio calculated as follows:		£4.25
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements and loan agreement (A)			$	176,549

Total assets per financial statements				221,172
Total liabilities per financial statements				176,549

Tangible net worth per loan agreement (B)			$	44,623


Consolidated Leverage Ratio:				3.96

The Great Western Bank credit facilities also require maintenance of consolidated and loan-specific loan to value ratios that do not exceed 70% tested annually commencing on December 31, 2012, and that we not pay dividends in excess of 75% of our funds from operations per year. The consolidated and loan-specific debt service coverage ratios for the credit facilities remain at 0.9 to 1, tested quarterly, through June 29, 2012. The consolidated debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through the maturity of the credit facilities. The loan-specific debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through December 30, 2012 and 1.20 to 1, tested quarterly, from December 31, 2012 through the maturity of the credit facilities.

The credit facilities with Great Western Bank currently consist of a $12.5 million revolving credit facility and term loans of $14 million, $10 million and $7.5 million. All loans under the credit facilities mature on June 30, 2013. The interest rate on the revolving credit portion of the credit facilities is 5.95% and the interest rate on the term loan portion of the credit facilities is 6.00%.

The credit facilities provide for $12.5 million of availability under the revolving credit facility through June 30, 2012, after which the loans available to us through the revolving credit facility and term loans 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 1.05 to 1 from July 1, 2012 through December 30, 2012 and 1.20 to 1 from December 31, 2012 through the maturity of the credit facilities. The credit facilities require a $500 reduction in the availability of the revolving credit facility by September 30, 2012 and an additional $500 reduction by December 31, 2012.


GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³1.05:1
Adjusted EBITDA (A) / Debt service (B)
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				35,832

Adjusted EBITDA per loan agreement (A)			$	18,355


Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717

Total interest expense per financial statements			$	12,402

Net adjustments per loan agreement				5,063

Debt service per loan agreement (B)				17,465

Consolidated debt service coverage ratio				1.05:1

*	Calculations based on prior four quarters


GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific total adjusted EBITDA calculated as follows: *		³$3.9 million
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				22,273

Loan-specific total adjusted EBITDA			$	4,796

*	Calculations based on prior four quarters

On March 29, 2012, our credit facilities with General Electric Capital Corporation (GE) were amended to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, we maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to our GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if we achieve a particular FCCR; (d) adds cross-default provisions with our other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, we converted the interest rates on certain of our GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

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 credit 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, 2011, we had long-term debt of $131.3 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 3.5 years and a weighted average interest rate of 6.37%. The weighted average fixed rate was 6.9%, and the weighted average variable rate was 4.7%. Debt held on properties in continuing operations is classified as held for use. Debt is classified as held for sale if the properties collateralizing it are included in discontinued operations. Debt associated with assets held for sale is classified as a short-term liability 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
2012	$	34,500	$	57,330	$	91,830
2013		—		3,537		3,537
2014		—		3,763		3,763
2015		—		15,434		15,434
2016		—		18,656		18,656
Thereafter		—		32,625		32,625

	$	34,500	$	131,345	$	165,845

At December 31, 2011, the Company had $91.8 million of principal due in 2012. Of this amount, $76.7 million of the principal due is associated with either assets held for use or assets held for sale, and matures in 2012 pursuant to the notes and mortgages evidencing such debt. The remaining $15.1 million is associated with assets held for sale and is not contractually due in 2012 unless the related assets are sold. The maturities comprising the $76.7 million consist of:

•

a $7.5 million balance on a term loan with Great Western Bank;

•

a $9.8 million balance on a term loan with Great Western Bank;

•

a $9.2 million balance on a term loan with Great Western Bank;

•

a $10.5 million balance on a revolving line of credit with Great Western Bank;

•

a $29.4 million balance on the loan with Greenwich Capital;

•

a $0.8 million note payable to First National Bank of Omaha;

•

a $3.0 million balance on a revolving credit facility with Elkhorn Valley Bank;

•

a $2.1 million note payable to Fredericksburg North Investors, LLC;

•

a $1.1 million balance on a note payable to General Electric Capital Corporation; and

•

approximately $3.3 million of principal amortization on mortgage loans.

The carrying value and estimated fair value of the Company's debt, as of December 31, 2011, are presented in the table below:


	Carrying Value				Estimated Fair Value
	December 31,				December 31,
	2011		2010		2011		2010
Continuing operations	$	131,345	$	132,271	$	133,172	$	136,444
Discontinued operations		34,500		42,739		35,274		44,417

Total	$	165,845	$	175,010	$	168,446	$	180,861

The fair values were estimated by discounting future cash payments to be made at rates that approximate rates currently offered for loans with similar maturities.