Equity-Based Compensation

6 Months Ended

Jun. 30, 2017

Entity Information [Line Items]

Equity-Based Compensation

EQUITY-BASED COMPENSATION

The Corporation and ESH REIT each maintain a long-term incentive plan (“LTIP”), as amended and restated in 2015, approved by their shareholders. Under the LTIPs, the Corporation and ESH REIT may issue to eligible employees or directors restricted stock awards (“RSAs”), restricted stock units (“RSUs”) or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIP has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of June 30, 2017, approximately 3.7 million Paired Shares were available for future issuance under the LTIPs.

Equity-based compensation expense is recognized by amortizing the grant-date fair value of the equity-based awards, less estimated forfeitures, on a straight-line basis over the requisite service period of each award. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Equity-based compensation expense was approximately $3.6 million and $2.9 million for the three months ended June 30, 2017 and 2016, respectively, and approximately $6.3 million and $5.6 million for the six months ended June 30, 2017 and 2016, respectively, and is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

As of June 30, 2017, unrecognized compensation expense related to outstanding equity-based awards and the related weighted-average period over which it is expected to be recognized subsequent to June 30, 2017, is presented in the following table. Total unrecognized compensation expense will be adjusted for actual forfeitures.

	Unrecognized Compensation Expense Related to Outstanding RSAs/RSUs (in thousands)		Remaining Weighted-Average Amortization Period (in years)
RSAs/RSUs with service vesting conditions	$	9,973	1.7
RSUs with performance vesting conditions	1,959		0.5
RSUs with market vesting conditions	5,594		1.4
Total unrecognized compensation expense	$	17,526

RSA/RSU activity during the six months ended June 30, 2017, was as follows:

					Performance-Based Awards
	Service-Based Awards				Performance Vesting				Market Vesting
	Number of RSAs/RSUs (in thousands)		Weighted- Average Grant- Date Fair Value		Number of RSUs (in thousands)		Weighted- Average Grant- Date Fair Value		Number of RSUs (in thousands)	Weighted- Average Grant- Date Fair Value(1)
Outstanding at January 1, 2017	892		$	16.93	119		$	14.07	972	$	9.01
Granted	263		$	17.48	192		$	17.45	104	$	18.58
Settled	(368	)	$	17.78	(119	)	$	14.07	—	$	—
Forfeited	(1	)	$	25.21	—		$	—	—	$	—
Outstanding at June 30, 2017	786		$	16.71	192		$	17.45	1,076	$	9.94
Vested at June 30, 2017	17		$	16.68	—		$	—	—	$	—
Nonvested at June 30, 2017	769		$	17.08	192		$	17.45	1,076	$	9.94

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(1) An independent third-party valuation was performed contemporaneously with the issuance of grants.

Service-Based Awards

The Corporation and ESH REIT granted approximately 237,000 and 26,000 service-based awards, respectively, during the six months ended June 30, 2017, with a weighted-average grant-date fair value per award of $17.47 and $17.56, respectively. The grant-date fair value of awards with service vesting conditions is based on the closing price of a Paired Share on the date of grant. Service-based awards vest over a period of one to four years, subject to the grantee’s continued employment or service.

Performance-Based Awards

The Corporation granted approximately 192,000 awards with performance vesting conditions during the six months ended June 30, 2017, with a grant-date fair value per award of $17.45. The grant-date fair value of awards with performance vesting conditions is based on the closing price of a Paired Share on the date of grant. Equity-based compensation expense with respect to these awards is adjusted over the remainder of the fiscal year to reflect the probability of achievement of performance targets defined in the award agreements. These awards vest over the remainder of the fiscal year, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 200% of the awarded number of RSUs based on the achievement of defined performance targets. As of June 30, 2017, all awards with performance vesting conditions are expected to be satisfied at approximately 100% of their target level.

The Corporation granted approximately 104,000 awards with market vesting conditions during the six months ended June 30, 2017, with a grant-date fair value per award of $18.58. The grant-date fair value of awards with market vesting conditions is based on an independent third-party valuation. These awards vest at the end of a three-year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 150% of the awarded number of RSUs based on the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreements. During the six months ended June 30, 2017, the grant-date fair value of awards with market vesting conditions was calculated using a Monte Carlo simulation model with the following key assumptions:

Expected holding period	2.86 years
Risk-free rate of return	1.46	%
Expected dividend yield	4.72	%

ESH REIT

Entity Information [Line Items]

Equity-Based Compensation

EQUITY-BASED COMPENSATION

The Corporation and ESH REIT each maintain a long-term incentive plan (“LTIP”), as amended and restated in 2015, approved by their shareholders. Under the LTIPs, the Corporation and ESH REIT may issue to eligible employees or directors restricted stock awards ("RSAs"), restricted stock units ("RSUs") or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIP has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of June 30, 2017, approximately 3.7 million Paired Shares were available for future issuance under the LTIPs.

Equity-based compensation expense is recognized by amortizing the grant-date fair value of the equity-based awards, less estimated forfeitures, on a straight-line basis over the requisite service period of each award. The grant-date fair value of equity-based awards is based on the closing price of a Paired Share on the date of grant. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Expense related to the portion of the grant-date fair value with respect to a share of Corporation common stock is recorded as a payable due to the Corporation. Expense related to the portion of the grant-date fair value with respect to a share of ESH REIT Class B common stock is recorded as an increase to additional paid in capital. ESH REIT incurred approximately $0.1 million of equity-based compensation expense related to its equity-based awards during each of the three and six months ended June 30, 2017 and 2016.

As of June 30, 2017, there was approximately $0.6 million of unrecognized compensation expense related to outstanding equity-based awards, which is expected to be recognized subsequent to June 30, 2017 over a weighted-average period of approximately 1.2 years. Total unrecognized compensation expense will be adjusted for actual forfeitures.

ESH REIT will have to pay more or less for a share of the Corporation common stock than it would have otherwise paid at the time of grant as the result of regular market changes in the value of a Paired Share between the time of grant and the time of settlement. An increase in the value allocated to a share of Corporation common stock due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as a distribution to the Corporation. A decrease in the value allocated to a share of Corporation common stock due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as additional paid in capital from the Corporation.

The Corporation accounts for awards issued under its LTIP in a manner similar to ESH REIT. For all LTIP awards granted by the Corporation, ESH REIT will receive compensation for the fair value of the Class B shares on the date of settlement of such Class B shares by ESH REIT. As of June 30, 2017, the Corporation has granted a total of approximately 3.2 million service-based, performance-based and market-based RSUs, of which approximately 1.2 million RSUs were either forfeited or settled. As a counterparty to these outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for approximately 2.0 million shares of Class B common stock of ESH REIT in future periods, assuming performance-based and market-based awards vest at 100% and no forfeitures.

RSA/RSU activity during the six months ended June 30, 2017, was as follows:

	Number of RSAs/RSUs (in thousands)		Weighted- Average Grant-Date Fair Value
Outstanding at January 1, 2017	28		$	14.57
Granted	26		$	17.56
Settled	(7	)	$	10.32
Forfeited	—		$	—
Outstanding at June 30, 2017	47		$	16.85
Vested at June 30, 2017	7		$	16.00
Nonvested at June 30, 2017	40		$	20.05