| Debt | 4. Debt Summary As of June 30, 2022 and December 31, 2021, the Company’s debt consisted of the following (in thousands):
June 30, 2022
December 31, 2021
Revolving credit facility
$
66,000
$
76,000
Term loans and senior notes, net
941,088
865,189
Mortgage debt, net
365,550
497,569
Debt, net
$
1,372,638
$
1,438,758
The aggregate amounts of principal payable under the Company’s total debt obligations as of June 30, 2022 (including the Revolving Credit Facility, term loans, senior notes and mortgage debt), for each of the next five fiscal years and thereafter are as follows (in thousands):
2022 (July - December)
$
102,770
2023
296,214
2024
338,597
2025
245,140
2026
74,649
Thereafter
319,616
1,376,986
Unamortized fair value adjustment of assumed debt
867
Unamortized debt issuance costs
(5,215
)
Total
$
1,372,638
The Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”). The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at June 30, 2022 and December 31, 2021, is set forth below. All dollar amounts are in thousands.
June 30, 2022
Percentage
December 31, 2021
Percentage
Fixed-rate debt (1)
$
1,260,986
92
%
$
1,318,046
91
%
Variable-rate debt
116,000
8
%
126,000
9
%
Total
$
1,376,986
$
1,444,046
Weighted-average interest rate of debt
3.56
%
3.38
%
(1)
Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. See Note 5 Credit Facilities $850 Million Credit Facility Prior to the Company’s debt refinancing in July 2022 (as discussed below), the Company utilized an unsecured credit facility comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the “Revolving Credit Facility”) and (ii) a $425 million term loan facility consisting of two term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024, both funded in July 2018 (the “$850 million credit facility”). $225 Million Term Loan Facility The Company also has an unsecured term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018, and the remaining $75 million was funded on January 29, 2019 (the “$225 million term loan facility”). The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the LIBOR plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. 2017 $85 Million Term Loan Facility On July 25, 2017, the Company entered into an unsecured term loan facility with a maturity date of July 25, 2024, consisting of one term loan (the “2017 $85 million term loan facility”), that was funded at closing. The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the 2017 $85 million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.30% to 2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. 2019 $85 Million Term Loan Facility On December 31, 2019, the Company entered into an unsecured term loan facility with a maturity date of December 31, 2029, consisting of one term loan funded at closing, (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings under the Company’s Revolving Credit Facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. $50 Million Senior Notes Facility On March 16, 2020, the Company entered into an unsecured senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility”). Net proceeds from the $50 million senior notes facility were available to provide funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement. $75 Million Senior Notes Facility On June 2, 2022, the Company entered into an unsecured senior notes facility with a maturity date of June 2, 2029, consisting of senior notes totaling $75 million funded at closing (the “$75 million senior notes facility”, and collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility, the 2019 $85 million term loan facility and the $50 million senior notes facility, the “unsecured credit facilities”). Net proceeds from the $75 million senior notes facility were available to provide funding for general corporate purposes, including the repayment of borrowings under the Company’s Revolving Credit Facility and repayment of mortgage debt. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $75 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 4.88% to 5.63% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement. As of June 30, 2022 and December 31, 2021, the details of the Company’s unsecured credit facilities were as set forth in the table below, which does not give effect to the debt refinancing in July 2022. All dollar amounts are in thousands.
Outstanding Balance
Interest Rate (1)
Maturity Date
June 30, 2022
December 31, 2021
Revolving credit facility (2)
LIBOR + 1.40% - 2.25%
7/27/2022 (4)
$
66,000
$
76,000
Term loans and senior notes
$200 million term loan
LIBOR + 1.35% - 2.20%
7/27/2023 (4)
200,000
200,000
$225 million term loan
LIBOR + 1.35% - 2.20%
1/31/2024 (4)
225,000
225,000
$50 million term loan
LIBOR + 1.35% - 2.20%
8/2/2023
50,000
50,000
$175 million term loan
LIBOR + 1.65% - 2.50%
8/2/2025
175,000
175,000
2017 $85 million term loan
LIBOR + 1.30% - 2.10%
7/25/2024
85,000
85,000
2019 $85 million term loan
LIBOR + 1.70% - 2.55%
12/31/2029
85,000
85,000
$50 million senior notes
3.60% - 4.35%
3/31/2030
50,000
50,000
$75 million senior notes
4.88% - 5.63%
6/2/2029
75,000
-
Term loans and senior notes at stated value
945,000
870,000
Unamortized debt issuance costs
(3,912
)
(4,811
)
Term loans and senior notes, net
941,088
865,189
Credit facilities, net (2)
$
1,007,088
$
941,189
Weighted-average interest rate (3)
3.39
%
2.97
%
(1)
Interest rates on all of the unsecured credit facilities increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period (as defined below) from March 1, 2021 through July 28, 2021.
( 2 )
Excludes unamortized debt issuance costs related to the Revolving Credit Facility totaling approximately $0.1 million and $1.0 million as of June 30, 2022 December 31, 2021
( 3 )
Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $770.0 million of the outstanding variable-rate debt as of June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021
(4)
On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, which extended the maturities of the existing Revolving Credit Facility, $200 million term loan and $225 million term loan to July 25, 2026, July 25, 2027 and January 31, 2028, respectively. Credit Facilities Covenants and Amendments The credit agreements governing the unsecured credit facilities (collectively, the “credit agreements”), contain mandatory prepayment requirements, customary affirmative and negative covenants, restrictions on certain investments and events of default. The credit agreements, not giving effect to the debt refinancing in July 2022, contained the following financial and restrictive covenants (capitalized terms not defined below are defined in the credit agreements):
●
A ratio of Consolidated Total Indebtedness to Consolidated EBITDA (“Maximum Consolidated Leverage Ratio”) of not more than 6.50 to 1.00 (subject to a higher amount in certain circumstances);
●
A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets (“Maximum Secured Leverage Ratio”) of not more than 45%;
●
A minimum Consolidated Tangible Net Worth of approximately $3.2 billion plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 27, 2018, subject to adjustment;
●
A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges ("Minimum Fixed Charge Coverage Ratio") of not less than 1.50 to 1.00 for the trailing four full quarters;
●
A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness ("Minimum Unsecured Interest Coverage Ratio") of not less than 2.00 to 1.00 for the trailing four full quarters;
●
A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value (“Maximum Unsecured Leverage Ratio”) of not more than 60 % (subject to a higher level in certain circumstances ); and
●
A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets (“Maximum Secured Recourse Indebtedness”) of not more than 10%. As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding the Company’s investing and financing activities that were applicable during a specified waiver period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities (the “March 2021 amendments”) to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ended June 30, 2022, and extending to March 31, 2022 for the remaining two covenants (unless, in each case, the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The March 2021 amendments provided for continued restrictions on the Company’s ability to make cash distributions, except for the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status. In addition to the modifications and restrictions imposed during the Extended Covenant Waiver Period, the March 2021 amendments modified the calculation of the existing financial covenants for the first three quarterly calculations subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts based on the period beginning with the first fiscal quarter upon exiting the Extended Covenant Waiver Period through the most recently ended fiscal quarter, and provided for an increase in the LIBOR floor under the Revolving Credit Facility from 0 to 25 basis points for Eurodollar Rate Loans (as defined in the credit agreements) and established a Base Rate (as defined in the credit agreements) floor of 1.25% on the Revolving Credit Facility. The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows:
●
Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter
●
Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter
●
Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter
●
Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter. Except as otherwise set forth in the amendments described above, the terms of the credit agreements remained in effect. In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021 pursuant to the terms of each of its unsecured credit facilities. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders (except to the extent required to maintain REIT status), capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021. As of June 30, 2022, the Company met the applicable financial maintenance covenants based on the results of the twelve months ended June 30, 2022 at the levels required for the fifth fiscal quarter tested upon exiting the Extended Covenant Waiver Period. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has elected to exit. 20 22 Debt Refinancing On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, increasing the borrowing capacity to $1.2 billion and extending the maturity dates (the “$1.2 billion credit facility”). The $1.2 billion credit facility is comprised of (i) a $650 million revolving credit facility with an initial maturity date of July 25, 2026, (ii) a $275 million term loan with a maturity date of July 25, 2027, funded at closing, and (iii) a $300 million term loan with a maturity date of January 31, 2028, of which $200 million was funded at closing and the remaining $100 million will be available to the Company in the form of a delayed draw term loan which allows up to four remaining draws within 180 days of closing. At closing, the Company repaid the outstanding $425 million term loans and $50 million outstanding under the Revolving Credit Facility under the $850 million credit facility with proceeds from the $1.2 billion credit facility. Subject to certain conditions, including covenant compliance and additional fees, the $650 million revolving credit facility maturity date may be extended up to one year. The credit agreement for the $1.2 billion credit facility contains mandatory prepayment requirements, customary affirmative and negative covenants (as described below), restrictions on certain investments and events of default, which are similar to the terms of the previous credit agreement for the $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $1.2 billion credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual SOFR rate for the selected interest period plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the $650 million revolving credit facility, based on the amount of borrowings outstanding during the quarter. The credit agreement for the $1.2 billion credit facility requires the Company and its subsidiaries to comply with various financial maintenance covenants, which include:
•
Maximum Consolidated Leverage Ratio of not more than 7.25 to 1.00
•
Maximum Secured Leverage Ratio of not more than 45%
•
A minimum Consolidated Tangible Net Worth of approximately $3.4 billion plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 25, 2022, subject to adjustment
•
Minimum Fixed Charge Coverage Ratio of not less than 1.50 to 1.00 for the trailing four full quarters
•
Minimum Unsecured Interest Coverage Ratio of not less than 2.00 to 1.00 for the trailing four full quarters
•
Maximum Unsecured Leverage Ratio of not more than 60% (subject to a higher level in certain circumstances); and
•
Maximum Secured Recourse Indebtedness of not more than 10% In addition, in July 2022, the Company amended all of the other unsecured credit facilities to align the financial covenants with the amended $1.2 billion credit facility and to replace the reference rate used (LIBOR) with SOFR plus 0.10% as applicable. No changes were made to margin rates. A summary of the 2022 debt refinancing is set forth below. All dollar amounts are in thousands.
2022 Refinancing
Prior to Refinancing
Capacity
Maturity Date
Interest Rate
Capacity
Maturity Date
Interest Rate
Revolving credit facility
$
650,000
7/25/2026
SOFR + 0.10% + 1.40% - 2.25%
$
425,000
7/27/2022
LIBOR + 1.40% - 2.25%
Term loan
275,000
7/25/2027
SOFR + 0.10% + 1.35% - 2.20%
200,000
7/27/2023
LIBOR + 1.35% - 2.20%
Term loan
300,000
1/31/2028
SOFR + 0.10% + 1.35% - 2.20%
225,000
1/31/2024
LIBOR + 1.35% - 2.20%
Total
$
1,225,000
$
850,000
Mortgage Debt As of June 30, 2022, the Company had approximately $366.0 million in outstanding mortgage debt secured by 22 properties with maturity dates ranging from October 2022 to May 2038 and both stated and effective interest rates ranging from 3.40% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of June 30, 2022 and December 31, 2021 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.
Location
Brand
Interest Rate (1)
Loan Assumption or Origination Date
Maturity Date
Principal Assumed or Originated
Outstanding balance as of June 30, 2022
Outstanding balance as of December 31, 2021
Seattle, WA
(2)
4.00
%
8/16/2021
(4)
$
56,000
$
-
$
56,000
Grapevine, TX
Hilton Garden Inn
4.89
%
8/29/2012
(5)
11,810
-
9,075
Collegeville/Philadelphia, PA
Courtyard
4.89
%
8/30/2012
(5)
12,650
-
9,720
Hattiesburg, MS
Courtyard
5.00
%
3/1/2014
(5)
5,732
-
4,550
Kirkland, WA
Courtyard
5.00
%
3/1/2014
(5)
12,145
-
9,640
Rancho Bernardo/San Diego, CA
Courtyard
5.00
%
3/1/2014
(5)
15,060
-
11,954
Seattle, WA
Residence Inn
4.96
%
3/1/2014
(5)
28,269
-
22,412
Anchorage, AK
Embassy Suites
4.97
%
9/13/2012
(6)
23,230
17,595
17,959
Somerset, NJ
Courtyard
4.73
%
3/1/2014
(6)
8,750
6,759
6,903
Tukwila, WA
Homewood Suites
4.73
%
3/1/2014
(6)
9,431
7,285
7,440
Huntsville, AL
Homewood Suites
4.12
%
3/1/2014
2/6/2023
8,306
6,334
6,473
Prattville, AL
Courtyard
4.12
%
3/1/2014
2/6/2023
6,596
5,030
5,141
San Diego, CA
Residence Inn
3.97
%
3/1/2014
3/6/2023
18,600
14,144
14,456
Miami, FL
Homewood Suites
4.02
%
3/1/2014
4/1/2023
16,677
12,722
13,000
New Orleans, LA
Homewood Suites
4.36
%
7/17/2014
8/11/2024
27,000
21,574
21,981
Westford, MA
Residence Inn
4.28
%
3/18/2015
4/11/2025
10,000
8,173
8,320
Denver, CO
Hilton Garden Inn
4.46
%
9/1/2016
6/11/2025
34,118
28,912
29,415
Oceanside, CA
Courtyard
4.28
%
9/1/2016
10/1/2025
13,655
12,170
12,318
Omaha, NE
Hilton Garden Inn
4.28
%
9/1/2016
10/1/2025
22,681
20,214
20,460
Boise, ID
Hampton
4.37
%
5/26/2016
6/11/2026
24,000
21,438
21,680
Burbank, CA
Courtyard
3.55
%
11/3/2016
12/1/2026
25,564
21,715
22,098
San Diego, CA
Courtyard
3.55
%
11/3/2016
12/1/2026
25,473
21,638
22,019
San Diego, CA
Hampton
3.55
%
11/3/2016
12/1/2026
18,963
16,108
16,392
Burbank, CA
SpringHill Suites
3.94
%
3/9/2018
4/1/2028
28,470
25,455
25,845
Santa Ana, CA
Courtyard
3.94
%
3/9/2018
4/1/2028
15,530
13,885
14,098
Richmond, VA
Courtyard
3.40
%
2/12/2020
3/11/2030
14,950
14,297
14,447
Richmond, VA
Residence Inn
3.40
%
2/12/2020
3/11/2030
14,950
14,297
14,447
Portland, ME (3)
Residence Inn
3.43
%
3/2/2020
3/1/2032
33,500
30,500
33,500
San Jose, CA
Homewood Suites
4.22
%
12/22/2017
5/1/2038
30,000
25,741
26,303
$
572,110
365,986
498,046
Unamortized fair value adjustment of assumed debt
867
1,010
Unamortized debt issuance costs
(1,303
)
(1,487
)
Total
$
365,550
$
497,569
(1)
Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan.
( 2 )
On August 16, 2021, the Company acquired the fee interest in the land at the Seattle, Washington Residence Inn, previously held under a finance ground lease, for a purchase price of $80.0 million, consisting of a $24.0 million cash payment and a one-year
(3)
Loan was amended effective March 1, 2022, in conjunction with a $3.0 million prepayment of loan principal. In addition, the maturity date of the loan was extended by two years to March 1, 2032.
(4)
Loan was repaid in full on June 16, 2022.
(5)
Loans were repaid in full on June 30, 2022.
(6)
Loans were repaid in full on August 1, 2022. |
