Debt

3 Months Ended

Mar. 31, 2021

The Company’s mortgage loans are collateralized by first-mortgage liens on certain of the Company’s properties. The mortgage loans are non-recourse except for instances of fraud or misapplication of funds. Mortgage and revolving credit facility debt consisted of the following (dollars in thousands):


Collateral	Interest Rate		Maturity Date	3/31/21 Property Carrying Value		Balance Outstanding on Loan as of
						March 31, 2021		December 31, 2020
Revolving Credit Facility (1)	3.11	%	March 8, 2022	$	624,787	$	120,000	$	135,300


Construction loan (2)	7.75	%	August 3, 2024	52,540		21,757		13,325
Residence Inn by Marriott New Rochelle, NY	5.75	%	September 1, 2021	21,829		12,483		12,602

Homewood Suites by Hilton San Antonio, TX	4.59	%	February 6, 2023	28,384		15,097		15,195
Residence Inn by Marriott Vienna, VA	4.49	%	February 6, 2023	30,748		20,645		20,780
Courtyard by Marriott Houston, TX	4.19	%	May 6, 2023	29,891		17,012		17,126
Hyatt Place Pittsburgh, PA	4.65	%	July 6, 2023	33,464		20,901		21,031
Residence Inn by Marriott Bellevue, WA	4.97	%	December 6, 2023	62,033		42,768		42,998
Residence Inn by Marriott Garden Grove, CA	4.79	%	April 6, 2024	41,126		31,305		31,463
Residence Inn by Marriott Silicon Valley I, CA	4.64	%	July 1, 2024	74,670		63,152		63,418
Residence Inn by Marriott Silicon Valley II, CA	4.64	%	July 1, 2024	82,846		68,902		69,192
Residence Inn by Marriott San Mateo, CA	4.64	%	July 1, 2024	61,935		47,364		47,564
Residence Inn by Marriott Mountain View, CA	4.64	%	July 6, 2024	47,754		36,936		37,092
SpringHill Suites by Marriott Savannah, GA	4.62	%	July 6, 2024	33,106		29,234		29,358
Hilton Garden Inn Marina del Rey, CA	4.68	%	July 6, 2024	37,775		20,372		20,490
Homewood Suites by Hilton Billerica, MA	4.32	%	December 6, 2024	12,796		15,336		15,411

Hampton Inn & Suites Houston Medical Center, TX	4.25	%	January 6, 2025	15,619		17,310		17,396

Total debt before unamortized debt issue costs				$	1,291,303	$	600,574	$	609,741
Unamortized mortgage debt issue costs						(893)		(971)
Total debt outstanding						$	599,681	$	608,770

1.The interest rate for the revolving credit facility is variable and based on LIBOR (subject to a 0.5% floor) plus a spread of 2.5% if borrowings remain at or below $200 million and a spread of 3.0% if borrowings exceed $200 million. At March 31, 2021 and December 31, 2020, the Company had $120.0 million and $135.3 million, respectively, of outstanding borrowings under its $250.0 million revolving credit facility. The credit facility provides two six-month extension options that would extend the final maturity to March 8, 2023 if exercised.

2.On August 4, 2020, a subsidiary of Chatham entered into an agreement with affiliates of Mack Real Estate Credit Strategies to obtain a $40 million loan to fund the remaining construction costs of the Warner Center hotel development. The loan has an initial term of 4 years and there are two six-month extension options. The rate on the loan is LIBOR, subject to a 0.25% floor, plus a spread of 7.5%.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. All of the Company's mortgage loans are fixed-rate. Rates take into consideration general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level 3 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt as of March 31, 2021 and December 31, 2020 was $464.2 million and $462.6 million, respectively.

The Company estimates the fair value of its variable rate debt by taking into account general market conditions and the estimated credit terms it could obtain for debt with similar maturity and is classified within level 3 of the fair value hierarchy. As of March 31, 2021, the Company’s variable rate debt consisted of its revolving credit facility and construction loan. The estimated fair value of the Company’s variable rate debt as of March 31, 2021 and December 31, 2020 was $141.8 million and $148.6 million, respectively.

On December 16, 2020, the Company, entered into a Third Amendment to the Company’s Amended and Restated Credit Agreement, dated as of March 8, 2018 (as amended by the Credit Agreement Amendment, and as previously amended by that certain First Amendment to the Amended and Restated Credit Agreement, dated as of May 6, 2020, and as further amended by that certain Second Amendment to Amended and Restated Credit Agreement, dated as of July 23, 2020), with certain lenders for whom Barclays Bank PLC is acting as the administrative agent. The amendment provides for the waiver of certain financial covenants through December 31, 2021 and allows the Company to borrow up to the entire $250.0 million facility size during this period. During this covenant waiver period, the Company will be required to maintain a minimum liquidity of $25.0 million which will include both unrestricted cash and credit facility availability. In connection with the amendment, the Company added 6 hotels to the credit facility’s borrowing base which now has a total of 24 properties. The amendment provided the Company’s credit facility lenders with pledges of the equity in the 24 borrowing base hotels. The amendment places additional limits on the Company’s ability to incur debt, pay dividends, and make capital expenditures during the covenant waiver period. During the covenant waiver period interest will be calculated as LIBOR (subject to a 0.5% floor) plus a spread of 2.50% if borrowings remain at or below $200.0 million and a spread of 3.0% if borrowings exceed $200.0 million. As of March 31, 2021, the Company was in compliance with all of its modified financial covenants.

Our mortgage debt agreements contain “cash trap” provisions that are triggered when the hotel’s operating results

fall below a certain debt service coverage ratio or debt yield. When these provisions are triggered, all of the excess cash flow generated by the hotel is deposited directly into cash management accounts for the benefit of our lenders until a specified debt service coverage ratio or debt yield is reached. Such provisions do not allow the lender the right to accelerate repayment of the underlying debt. As of March 31, 2021, the debt service coverage ratios or debt yields for all of our mortgage loans were below the minimum thresholds such that the cash trap provision of each respective loan could be enforced. As of March 31, 2021, none of our mortgage debt lenders has enforced cash trap provisions. We do not expect that such cash traps will affect our ability to satisfy our short-term liquidity requirements.

Future scheduled principal payments of debt obligations as of March 31, 2021, for the current year and each of the next five calendar years and thereafter are as follows (in thousands):


	Amount
2021 (remaining nine months)	$	19,141
2022	129,249
2023	117,876
2024	318,373
2025	15,935
Thereafter	—
Total debt before unamortized debt issue costs	$	600,574
Unamortized mortgage debt issue costs	(893)
Total debt outstanding	$	599,681

Accounting for Derivative Instruments

The Company has entered into interest rate cap agreements to hedge against interest rate fluctuations related to the construction loans for the Warner Center hotel. The Company records its derivative instruments on the balance sheet at their estimated fair values. Changes in the fair value of the derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. The Company's interest rate caps are not designated as a hedge but to eliminate the incremental cost to the Company if the one-month LIBOR were to exceed 3.5%. Accordingly, the interest rate caps are recorded on the balance sheet under prepaid expenses and other assets at the estimated fair value and realized and unrealized changes in the fair value are reported in the combined statement of operations. As of March 31, 2021, the fair value of the interest rate caps were $49 thousand.