Debt

The following table sets forth information regarding the Company’s debt as of June 30, 2014, in thousands:



Property	Principal Balance		Interest Rate	Maturity Date

Courtyard Manhattan / Midtown East (1)	$	41,315	8.81%	October 2014
Marriott Salt Lake City Downtown	62,179		4.25%	November 2020
Courtyard Manhattan / Fifth Avenue	49,282		6.48%	June 2016
Renaissance Worthington	53,334		5.40%	July 2015
Frenchman’s Reef & Morning Star Marriott Beach Resort	57,136		5.44%	August 2015
Marriott Los Angeles Airport	82,600		5.30%	July 2015
Orlando Airport Marriott	56,353		5.68%	January 2016
Chicago Marriott Downtown Magnificent Mile	206,799		5.975%	April 2016
Hilton Minneapolis	93,980		5.464%	May 2021
JW Marriott Denver at Cherry Creek	39,226		6.47%	July 2015
Lexington Hotel New York	170,368		LIBOR + 3.00% (3.151% at June 30, 2014)	March 2015 (2)
Westin Washington D.C. City Center	71,533		3.99%	January 2023
The Lodge at Sonoma, a Renaissance Resort & Spa	30,377		3.96%	April 2023
Westin San Diego	69,568		3.94%	April 2023
Debt premium (3)	362
Total mortgage debt	1,084,412

Senior unsecured credit facility (5)	41,320		LIBOR + 1.90% (2.09% at June 30, 2014)	January 2017 (2)
Total debt	$	1,125,732
Weighted-Average Interest Rate			5.05%

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(1)	We prepaid the mortgage loan in full on July 1, 2014.


(2)	The loan may be extended for two additional one-year terms subject to the satisfaction of certain conditions and the payment of an extension fee.


(3)	Recorded upon our assumption of the JW Marriott Denver at Cherry Creek mortgage debt in 2011.


(4)	The credit facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.


(5)	Draw on the credit facility was used to fund the prepayment of the mortgage loan secured by the Courtyard Manhattan/Midtown East on July 1, 2014. As permitted under the credit facility, the mortgage was transferred to the credit facility until the closing of the new mortgage loan on July 18, 2014.

Mortgage Debt

We have incurred limited recourse, property specific mortgage debt secured by certain of our hotels. In the event of default, the lender may only foreclose on the secured assets; however, in the event of fraud, misapplication of funds or other customary recourse provisions, the lender may seek payment from us. As of June 30, 2014, 14 of our 25 hotels were secured by mortgage debt. Our mortgage debt contains certain property specific covenants and restrictions, including minimum debt service coverage ratios that trigger “cash trap” provisions as well as restrictions on incurring additional debt without lender consent.

The Lexington Hotel New York mortgage loan contains a quarterly financial covenant requiring a minimum debt service coverage ratio ("DSCR"), as defined in the loan agreement, of 1.1 times. As a result of the ongoing renovation of the hotel during most of 2013, the DSCR fell below the minimum requirement. Under the loan agreement, we have the ability to cure the default by depositing the amount of the DSCR shortfall into a reserve with the lender. If we did not fund the DSCR shortfall and cure the default, the loan would have become due and payable. As of June 30, 2014, the lender is holding $2.8 million in a reserve to cover the DSCR shortfall. The reserve will be released back to us when the DSCR is above 1.1 times, which we achieved as of June 30, 2014. In addition, the cash trap provision was triggered on the loan during 2013 and is still in effect.

As of June 30, 2014, we are in compliance with the other financial covenants of our mortgage debt.

On July 1, 2014, we prepaid the $41.3 million mortgage loan secured by the Courtyard Manhattan/Midtown East. We funded the mortgage loan using a $41.3 million draw on our senior unsecured credit facility. The mortgage was transferred to our senior unsecured credit facility until July 18, 2014, when we entered into a new $86 million mortgage loan secured by the Courtyard Manhattan/Midtown East. The new loan has a term of ten years and bears interest at a fixed rate of 4.40%. In connection with the new mortgage loan, we repaid the $41.3 million outstanding on our senior unsecured credit facility. The new loan is interest-only for the first two years after which principal will amortize over 30 years.

Senior Unsecured Credit Facility

We are party to a $200 million unsecured credit facility, which expires in January 2017. The maturity date of the facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain other customary conditions. We also have the right to increase the amount of the facility up to $400 million with lender approval. Interest is paid on the periodic advances under the facility at varying rates, based upon LIBOR, plus an agreed upon additional margin amount. The applicable margin is based upon the Company’s ratio of net indebtedness to EBITDA, as follows:



Ratio of Net Indebtedness to EBITDA	Applicable Margin
Less than 4.00 to 1.00	1.75	%
Greater than or equal to 4.00 to 1.00 but less than 5.00 to 1.00	1.90	%
Greater than or equal to 5.00 to 1.00 but less than 5.50 to 1.00	2.10	%
Greater than or equal to 5.50 to 1.00 but less than 6.00 to 1.00	2.20	%
Greater than or equal to 6.00 to 1.00 but less than 6.50 to 1.00	2.50	%
Greater than or equal to 6.50 to 1.00	2.75	%

In addition to the interest payable on amounts outstanding under the facility, we are required to pay an amount equal to 0.35% of the unused portion of the facility if the unused portion of the facility is greater than 50% or 0.25% if the unused portion of the facility is less than or equal to 50%.

The facility contains various corporate financial covenants. A summary of the most restrictive covenants is as follows:



		Actual at
	Covenant	June 30, 2014
Maximum leverage ratio (1)	60%	46.0%
Minimum fixed charge coverage ratio (2)	1.50x	2.52x
Minimum tangible net worth (3)	$1.857 billion	$2.321 billion
Secured recourse indebtedness	Less than 45% of Total Asset Value	40.7%

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(1)

Leverage ratio is total indebtedness, as defined in the credit agreement which includes our commitment on the Times Square development hotel, divided by total asset value, defined in the credit agreement as a) total cash and cash equivalents plus b) the value of our owned hotels based on hotel net operating income divided by a defined capitalization rate, and (c) the book value of the Allerton Loan.


(2)	Fixed charge coverage ratio is Adjusted EBITDA, defined in the credit agreement as EBITDA less FF&E reserves, for the most recently ending 12 months, to fixed charges, which is defined in the credit agreement as interest expense, all regularly scheduled principal payments and payments on capitalized lease obligations, for the same most recently ending 12-month period.


(3)	Tangible net worth, as defined in the credit agreement, is (i) total gross book value of all assets, exclusive of depreciation and amortization, less intangible assets, total indebtedness, and all other liabilities, plus (ii) 75% of net proceeds from future equity issuances.

The facility requires us to maintain a specific pool of unencumbered borrowing base properties. The unencumbered borrowing base assets must include a minimum of five properties with an unencumbered borrowing base value, as defined in the credit agreement, of not less than $250 million. As of June 30, 2014, the unencumbered borrowing base included five properties with a borrowing base value of $323 million.

As of June 30, 2014, we had $41.3 million of borrowings outstanding under the facility and the Company's ratio of net indebtedness to EBITDA was 3.97x. Accordingly, interest on our borrowings under the facility will be based on LIBOR plus 175 basis points for the next quarter. The borrowings outstanding under the facility were repaid on July 18, 2014. We incurred interest and unused credit facility fees on the facility of $0.2 million for the three months ended June 30, 2014 and 2013. We incurred interest and unused credit facility fees on the facility of $0.4 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively.