Debt

9 Months Ended

Sep. 30, 2023

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, revolving credit facility, and unsecured term loan debt consisted of the following (dollars in thousands):


Collateral	Interest Rate		Maturity Date	September 30, 2023 Property Carrying Value		Balance Outstanding on Loan as of
						September 30, 2023		December 31, 2022
Revolving Credit Facility (1)	—	%	October 28, 2026	$	—	$	—	$	—
Unsecured Term Loan (2)	6.56	%	October 28, 2025	—		90,000		—
Construction Loan (3)	11.0	%	August 4, 2024	—		—		39,331
Homewood Suites by Hilton San Antonio, TX	4.59	%	February 6, 2023	—		—		14,402
Residence Inn by Marriott Vienna, VA	4.49	%	February 6, 2023	—		—		19,680
Courtyard by Marriott Houston, TX	4.19	%	May 6, 2023	—		—		16,200
Hyatt Place Pittsburgh, PA	4.65	%	July 6, 2023	—		—		19,975
Residence Inn by Marriott Bellevue, WA	4.97	%	December 6, 2023	—		—		41,133
Residence Inn by Marriott Garden Grove, CA	4.79	%	April 6, 2024	36,561		29,673		30,184
Residence Inn by Marriott Silicon Valley I, CA	4.64	%	July 1, 2024	64,976		60,427		61,280
Residence Inn by Marriott Silicon Valley II, CA	4.64	%	July 1, 2024	72,627		65,929		66,860
Residence Inn by Marriott San Mateo, CA	4.64	%	July 1, 2024	54,890		45,321		45,960
Residence Inn by Marriott Mountain View, CA	4.64	%	July 1, 2024	40,052		35,343		35,842
SpringHill Suites by Marriott Savannah, GA	4.62	%	July 6, 2024	30,699		27,968		28,365
Hilton Garden Inn Marina del Rey, CA	4.68	%	July 6, 2024	37,546		19,154		19,535
Homewood Suites by Hilton Billerica, MA	4.32	%	December 6, 2024	10,961		14,563		14,804
Hampton Inn & Suites Houston Medical Center, TX	4.25	%	January 6, 2025	14,069		16,432		16,706
Courtyard by Marriott Dallas, TX (4)	7.61	%	September 11, 2028	40,820		24,500		—
Residence Inn by Marriott Austin, TX (5)	7.42	%	September 6, 2033	34,932		20,850		—
TownePlace Suites by Marriott Austin, TX (5)	7.42	%	September 6, 2033	31,618		19,075		—
Courtyard by Marriott Summerville, SC (6)	7.33	%	September 11, 2033	18,890		9,000		—
Residence Inn by Marriott Summerville, SC (6)	7.33	%	September 11, 2033	17,399		9,500		—
Total debt before unamortized debt issue costs				$	506,040	$	487,735	$	470,257
Unamortized term loan and mortgage debt issue costs						(1,664)		(373)
Total debt outstanding						$	486,071	$	469,884

1.The interest rate for the revolving credit facility is variable and based on one-month term secured overnight financing rate ("SOFR") plus a spread of 1.50% to 2.25% based on the Company's leverage and a credit spread adjustment of 0.10%.

2.The interest rate for the unsecured term loan is variable and based on one-month term SOFR plus a spread of 1.45% to 2.20% based on the Company's leverage and a credit spread adjustment of 0.10%.

3.On August 4, 2020, a subsidiary of Chatham entered into an agreement with affiliates of Mack Real Estate Credit Strategies to obtain a $40.0 million loan to fund the remaining construction costs of the Home2 Suites by Hilton Woodland Hills Los Angeles ("Home2 Woodland Hills") hotel development. The loan had an initial term of four years and there were two six-month extension options. The interest rate on the loan was LIBOR, subject to a 0.25% floor, plus a spread of 7.5%. The loan was repaid on February 1, 2023.

4.On August 30, 2023, a subsidiary of Chatham entered into an agreement with Wells Fargo Bank to obtain a $24.5 million loan secured by the Courtyard by Marriott Dallas Downtown. The loan has a term of five years, carries a fixed interest rate of 7.61%, and is interest-only for the duration of the loan.

5.On August 16, 2023, two subsidiaries of Chatham entered into two agreements with Barclays Capital Real Estate to obtain a $20.9 million loan and a $19.1 million loan secured by the Residence Inn by Marriott Austin and the TownePlace Suites by Marriott Austin, respectively. Each loan has a term of ten years, carries a fixed interest rate of 7.42%, and is interest-only for the first five years before amortizing based upon a 30-year amortization schedule.

6.On August 31, 2023, two subsidiaries of Chatham entered into two agreements with Wells Fargo Bank to obtain a $9.0 million loan and a $9.5 million loan secured by the Courtyard by Marriott Summerville and the Residence Inn by Marriott Summerville, respectively. Each loan has a term of ten years, carries a fixed interest rate of 7.33%, and is interest-only for the duration of the loan.

On October 28, 2022, the Company entered into a $215.0 million unsecured revolving credit facility and a $90.0 million unsecured delayed-draw term loan facility that replaced the Company’s previous $250.0 million revolving credit facility that was scheduled to mature on March 8, 2023. The revolving credit facility has an initial maturity of October 28, 2026 and provides two six-month extension options. The unsecured delayed-draw term loan facility has an initial maturity of October 28, 2025 and provides two one-year extension options. On December 19, 2022, the Company executed an amendment to its unsecured revolving credit facility, increasing commitments by $45.0 million for a total borrowing capacity of $260.0 million.

During the nine months ended September 30, 2023, the Company repaid the $39.3 million construction loan on the Home2 Woodland Hills hotel property, and the maturing mortgage loans of $14.4 million on the Homewood Suites San Antonio hotel property, $19.7 million on the Residence Inn Tysons hotel property, $16.0 million on the Courtyard Houston hotel property, $19.7 million on the Hyatt Place Pittsburgh hotel property, and $40.5 million on the Residence Inn Bellevue hotel property. The Company utilized cash, borrowings under its unsecured delayed-draw term loan, and proceeds from its five new mortgage loans to repay these loans.

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 September 30, 2023 and December 31, 2022 was $384.8 million and $412.7 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 September 30, 2023, the Company’s variable rate debt consisted of borrowings under its revolving credit facility and its unsecured delayed-draw term loan. The estimated fair value of the Company’s variable rate debt as of September 30, 2023 and December 31, 2022 was $90.0 million and $39.3 million, respectively.

The Company's 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 the 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 September 30, 2023, four of our mortgage debt lenders have enforced cash trap provisions resulting in $6.2 million of restricted cash. The Company does not expect that such cash traps will affect its ability to satisfy its short-term liquidity requirements.

Future scheduled principal payments of debt obligations as of September 30, 2023, for the current year and each of the next five calendar years and thereafter are as follows (in thousands):


	Amount
2023 (remaining three months)	$	1,846
2024	297,003
2025	105,961
2026	—
2027	—
Thereafter	82,925
Total debt before unamortized debt issue costs	$	487,735
Unamortized term loan and mortgage debt issue costs	(1,664)
Total debt outstanding	$	486,071

Accounting for Derivative Instruments

The Company had interest rate cap agreements to hedge against interest rate fluctuations related to the construction loan for the Home2 Woodland Hills hotel. The Company recorded 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 were 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 were 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 consolidated statement of operations. During the nine months ended September 30, 2023, the Company terminated its interest rate caps related to the construction loan when the loan was repaid.