Debt

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



Property	Principal Balance		Interest Rate	Maturity Date

Courtyard Manhattan / Midtown East	$	86,000	4.40%	August 2024
Marriott Salt Lake City Downtown	61,829		4.25%	November 2020
Courtyard Manhattan / Fifth Avenue	49,132		6.48%	June 2016
Renaissance Worthington	53,102		5.40%	July 2015
Frenchman’s Reef & Morning Star Marriott Beach Resort	56,871		5.44%	August 2015
Marriott Los Angeles Airport	82,600		5.30%	July 2015
Orlando Airport Marriott	56,145		5.68%	January 2016
Chicago Marriott Downtown Magnificent Mile	206,006		5.975%	April 2016
Hilton Minneapolis	93,454		5.464%	May 2021
JW Marriott Denver at Cherry Creek	38,940		6.47%	July 2015
Lexington Hotel New York	170,368		LIBOR + 3.00% (3.151% at September 30, 2014)	March 2015 (1)
Westin Washington D.C. City Center	71,090		3.99%	January 2023
The Lodge at Sonoma, a Renaissance Resort & Spa	30,242		3.96%	April 2023
Westin San Diego	69,258		3.94%	April 2023
Debt premium (2)	272
Total mortgage debt	1,125,309

Senior unsecured credit facility	—		LIBOR + 1.90% (2.09% at September 30, 2014)	January 2017 (3)
Total debt	$	1,125,309
Weighted-Average Interest Rate			4.97%

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(1)	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. We amended the loan on October 8, 2014, which is discussed further below.


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


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

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 September 30, 2014, 14 of our 27 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. We were able to cure the default by depositing the amount of the DSCR shortfall into a reserve with the lender. The DSCR is currently above the financial covenant and the reserve was released by the lender in August 2014. In addition, the cash trap provision was triggered on the loan during 2013 and is still in effect. As of September 30, 2014, the lender is holding approximately $16.1 million in the cash trap.

On October 8, 2014, we amended the Lexington Hotel New York mortgage loan. The amended loan bears interest at an initial floating rate of LIBOR plus 275 basis points and features a pricing grid that will further reduce the spread to as low as 175 basis points upon achieving certain hotel cash flow hurdles. The amendment extends the term of the loan by approximately 30 months to October 2017. The loan may be extended for two additional one-year terms subject to the satisfaction of certain financial and other conditions and the payment of an extension fee. During the third quarter, we paid approximately $1.3 million in fees to amend the loan, which are recorded in deferred financing costs on the accompanying condensed consolidated balance sheet.

On July 18, 2014, we entered into a new $86 million mortgage loan secured by the Courtyard Manhattan/Midtown East. The new loan matures in 2024 and bears interest at a fixed rate of 4.40%. The new loan is interest-only for the first two years after which principal will amortize over 30 years. The hotel was previously encumbered by a $41.3 million mortgage loan bearing interest at 8.81%, which was prepaid in full on July 1, 2014.

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

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	September 30, 2014
Maximum leverage ratio (1)	60%	39.5%
Minimum fixed charge coverage ratio (2)	1.50x	2.7x
Minimum tangible net worth (3)	$1.857 billion	$2.371 billion
Secured recourse indebtedness	Less than 45% of Total Asset Value	39.5%

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(1)	Leverage ratio is total indebtedness, as defined in the credit agreement, divided by total asset value, defined in the credit agreement as a) total cash and cash equivalents and b) the value of our owned hotels based on hotel net operating income divided by a defined capitalization rate.


(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 September 30, 2014, the unencumbered borrowing base included five properties with a borrowing base value of $341 million.

As of September 30, 2014, we had no borrowings outstanding under the facility and the Company's ratio of net indebtedness to EBITDA was 4.15x. Accordingly, interest on our future borrowings, if any, under the facility will be based on LIBOR plus 190 basis points for the next quarter. We incurred interest and unused credit facility fees on the facility of $0.2 million for the three months ended September 30, 2014 and 2013. We incurred interest and unused credit facility fees on the facility of $0.6 million and $0.7 million for the nine months ended September 30, 2014 and 2013, respectively.