Derivative Instruments

9 Months Ended

Sep. 30, 2017

DERIVATIVE INSTRUMENTS

The Company from time to time uses derivative instruments to manage its exposure to interest rate, foreign currency exchange rate and commodity price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes in interest rates, foreign currency exchange rates and commodity prices. The Company’s derivatives expose it to credit risk to the extent that counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.

In September 2016, ESH REIT entered into a floating-to-fixed interest rate swap at a fixed rate of 1.175% and a floating rate of one-month LIBOR, subject to a LIBOR floor of 0.75%, to manage its exposure to interest rate risk on a portion of its variable rate debt. In February 2017, ESH REIT executed an amendment to its swap agreement, the impact of which was to remove the LIBOR floor on floating rate cash flows. The notional amount of the interest rate swap as of September 30, 2017 was $400.0 million. On March 30, 2018, the notional amount decreases to $350.0 million, and the notional amount continues to decrease by an additional $50.0 million every six months until the swap's maturity in September 2021.

From September 2016 through the February 2017 amendment to ESH REIT's swap agreement, the swap was designated as an effective cash flow hedge and changes in fair value were recognized through accumulated other comprehensive income. Concurrent with the February 2017 swap amendment and through April 2017, the swap's designation as a cash flow hedge was reversed and changes in fair value were recognized in earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. In April 2017, ESH REIT re-designated the swap as an effective cash flow hedge. Subsequent to April 2017, the effective portion of changes in fair value are recognized through accumulated other comprehensive income and the ineffective portion is recognized in other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. Prior changes recognized through accumulated other comprehensive income are amortized over the remaining life of the swap through earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. As of September 30, 2017, approximately $1.1 million is expected to be recognized through earnings over the following twelve months.

The table below presents the amounts and classification on the Company's financial statements related to the interest rate swap (in thousands):



	Other Assets		Accumulated other comprehensive income, net of tax			Other non-operating expense (income)			Interest Expense
As of September 30, 2017	$	4,534	$	4,079	⁽¹⁾
As of December 31, 2016	$	4,990	$	3,898
For the three months ended September 30, 2017						$	104	⁽²⁾	$	(66	)
For the three months ended September 30, 2016						$	—		$	—
For the nine months ended September 30, 2017						$	356	⁽³⁾	$	807
For the nine months ended September 30, 2016						$	—		$	—

_______________________________


(1)	Changes during the nine months ended September 30, 2017 consisted of changes in fair value of $(0.5) million (effective portion) and amortization of accumulated other comprehensive income prior to de-designation of $0.7 million.


(2)	Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.1 million.


(3)	Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.7 million and removal of the LIBOR floor of approximately $(0.3) million.

ESH REIT

Entity Information [Line Items]

Derivative Instruments

DERIVATIVE INSTRUMENTS

ESH REIT from time to time uses derivative instruments to manage its exposure to interest rate and foreign currency exchange rate risks. ESH REIT’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes in interest rates and foreign currency exchange rates. ESH REIT’s derivatives expose it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. ESH REIT seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.

The table below presents the amounts and classification on ESH REIT's financial statements related to the interest rate swap (in thousands):



	Other Assets		Accumulated other comprehensive income, net of tax			Other non-operating expense (income)			Interest Expense
As of September 30, 2017	$	4,534	$	5,228	⁽¹⁾
As of December 31, 2016	$	4,990	$	4,975
For the three months ended September 30, 2017						$	104	⁽²⁾	$	(66	)
For the three months ended September 30, 2016						$	—		$	—
For the nine months ended September 30, 2017						$	356	⁽³⁾	$	807
For the nine months ended September 30, 2016						$	—		$	—

_______________________________


(1)	Changes during the nine months ended September 30, 2017 consisted of changes in fair value of $(0.5) million (effective portion) and amortization of accumulated other comprehensive income prior to de-designation of $0.7 million.


(2)	Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.1 million.


(3)	Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.7 million and removal of the LIBOR floor of approximately $(0.3) million.