Hotel Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2018

Property, Plant and Equipment [Line Items]

HOTEL ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

On May 30, 2018, the Company acquired a hotel from Legacy Rock Hill, LLC for cash consideration of approximately $13.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, which requires that the consideration be allocated to acquired assets and assumed liabilities based on their acquisition date fair values. The vast majority of the purchase price was allocated to building and improvements. Legal, professional and other costs directly related to the acquisition were approximately $(0.1) million and $0.2 million for the three and nine months ended September 30, 2018, respectively, and are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

The purchase price allocation among the assets acquired is as follows (in thousands, except for estimated useful lives):



	Amount		Estimated Useful Life
Land and site improvements	$	1,397	3-20 years
Building and improvements	10,488		4-49 years
Furniture, fixtures and equipment	1,115		2-10 years
Total purchase price	$	13,000

For the three and nine months ended September 30, 2018, approximately $0.5 million and $0.6 million, respectively, in room and other hotel revenues and $0.1 million and $0.1 million, respectively, in income from operations are included in the accompanying unaudited condensed consolidated statements of operations related to this hotel. Prior to its acquisition by the Company, the hotel opened in late 2017.

DISPOSITIONS

2018 Dispositions—In September 2018, the Company sold a total of 32 hotels in two separate transactions for $122.6 million. The carrying value of these hotels, including net working capital and allocable goodwill, net of impairment charges recorded prior to sale, was approximately $116.9 million. These transactions resulted in a total gain on sale of approximately $3.8 million, net of closing costs and adjustments, which is reported in gain on sale of hotel properties during the three and nine months ended September 30, 2018 in the accompanying unaudited condensed consolidated statements of operations.

In February 2018, the Company sold 25 hotels for approximately $112.1 million. The carrying value of these hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to sale, was approximately $104.7 million. In March 2018, the Company sold one additional hotel for approximately $44.8 million. The carrying value of the hotel, including allocable goodwill, was approximately $13.1 million. These transactions resulted in a total gain on sale of approximately $37.8 million, net of closing costs and adjustments, which is reported in gain on sale of hotel properties during the nine months ended September 30, 2018 in the accompanying unaudited condensed consolidated statements of operations.

2017 Dispositions—In May 2017, the Company sold its three Extended Stay Canada-branded hotels for 76.0 million Canadian dollars, or approximately $55.3 million. The carrying value of the hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to sale, was approximately 56.7 million Canadian dollars, or approximately $41.2 million, prior to the evaluation of existing accumulated foreign currency translation loss. Due to the fact that the Company's Canadian subsidiaries liquidated substantially all of their assets, approximately $14.5 million of accumulated foreign currency translation loss was recognized at the time of sale. This charge more than fully offset the Canadian subsidiaries' gain on sale, which resulted in a net loss on sale of the Canadian hotels of approximately $1.9 million, net of closing costs and adjustments. In May and December 2017, the Company sold two additional hotels for approximately $21.4 million. The carrying value of these hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to sale, was approximately $9.2 million, resulting in a total gain on sale of approximately $11.9 million, net of closing costs and adjustments.

None of the above dispositions are reported as discontinued operations. The table below summarizes the hotel dispositions described above (in thousands, except number of hotels and number of rooms):



Year	Brand	Location	Month Sold	Number of Hotels	Number of Rooms	Net Proceeds		Gain (Loss) Recognized				Franchised/Managed ⁽³⁾
2018	Extended Stay America	Various	September	16	1,680	$	60,710	$	6,614		⁽¹⁾	Yes
2018	Extended Stay America	Various	September	16	1,776	$	58,144	$	(2,840	)	⁽¹⁾	Yes
2018	Extended Stay America	Various	February	25	2,430	$	111,156	$	6,768		⁽¹⁾	Yes
2018	Extended Stay America	Texas	March	1	101	$	44,090	$	31,058			Yes
2017	Extended Stay America	Colorado	December	1	160	$	15,985	$	11,870			Yes
2017	Extended Stay Canada	Canada	May	3	500	$	43,551	$	(1,894	)	⁽²⁾	No
2017	Other	Massachusetts	May	1	103	$	5,092	$	(2	)	⁽¹⁾	No

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(1)	Net of impairment charges of approximately $24.3 million, $6.3 million, $2.1 million and $1.7 million, respectively, recorded prior to sale.


(2)	Due to the fact that the Company's Canadian subsidiaries liquidated substantially all of their assets, approximately $14.5 million of accumulated foreign currency translation loss was recognized at the time of sale. An impairment charge of approximately $12.4 million was recorded prior to sale.


(3)	As of September 30, 2018.

During the three and nine months ended September 30, 2018 and 2017, the disposed hotel properties contributed total room and other hotel revenues, total operating expenses and income before income tax expense as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018				2017
Total room and other hotel revenues	$	10,900	$	22,834	$	37,922			$	66,851
Total operating expenses	8,845		17,516		51,113			⁽¹⁾	69,940			⁽²⁾
Income (loss) before income tax expense	2,055		5,632		(13,191		)	⁽¹⁾	(2,462		)	⁽²⁾

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(1)	Includes impairment charge of approximately $20.6 million related to certain hotels sold in September 2018.


(2)	Includes impairment charge of approximately $15.7 million related to certain hotels sold in May 2017 and September 2018.

ESH REIT

Property, Plant and Equipment [Line Items]

Hotel Acquisitions and Dispositions

HOTEL ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

On May 30, 2018, ESH REIT acquired a hotel from Legacy Rock Hill, LLC for cash consideration of approximately $13.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, which requires that the consideration be allocated to acquired assets and assumed liabilities based on their acquisition date fair values. The vast majority of the purchase price was allocated to building and improvements. Legal, professional and other costs directly related to the acquisition were approximately $(0.1) million and $0.2 million for the three and nine months ended September 30, 2018, respectively, and are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

The purchase price allocation among the assets acquired is as follows (in thousands, except for estimated useful lives):



	Amount		Estimated Useful Life
Land and site improvements	$	1,397	3-20 years
Building and improvements	10,488		4-49 years
Furniture, fixtures and equipment	1,115		2-10 years
Total purchase price	$	13,000

The acquired hotel contributed total rental revenues of approximately $0.3 million and $0.4 million for the three and nine months ended September 30, 2018, respectively and income from operations of $0.1 million and $0.2 million for the three and nine months ended September 30, 2018, respectively. Prior to its acquisition by ESH REIT, the hotel opened in late 2017.

DISPOSITIONS

2018 Dispositions—In September 2018, ESH REIT sold 32 hotels in two separate transactions for $122.6 million. The carrying value of these hotels, including net working capital and allocable goodwill, was approximately $146.1 million. These transactions resulted in a total loss on sale of approximately $25.5 million, net of closing costs and adjustments, which is reported in loss on sale of hotel properties during the three and nine months ended September 30, 2018 in the accompanying unaudited condensed consolidated statements of operations.

In February 2018, ESH REIT sold 25 hotels for approximately $112.1 million. The carrying value of these hotels, including net working capital and allocable goodwill, was approximately $107.2 million. In March 2018, ESH REIT sold one additional hotel for approximately $44.8 million. The carrying value of the hotel, including allocable goodwill, was approximately $13.2 million. These transactions resulted in a total gain on sale of approximately $35.2 million, net of closing costs and adjustments, which is reported in gain on sale of hotel properties during the nine months ended September 30, 2018 in the accompanying unaudited condensed consolidated statements of operations.

2017 Dispositions—In May 2017, ESH REIT sold its three Extended Stay Canada-branded hotels for 67.4 million Canadian dollars, or approximately $49.0 million. ESH REIT's carrying value of the hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to sale, was approximately 51.2 million Canadian dollars, or approximately $37.3 million prior to the evaluation of existing foreign currency translation loss. Due to the fact that ESH REIT's Canadian subsidiary liquidated substantially all of its assets, approximately $12.5 million of accumulated foreign currency translation loss was recognized at the time of sale. This charge more than fully offset the Canadian subsidiary's gain on sale, which resulted in a loss on sale of the Canadian hotels of approximately $1.5 million, net of closing costs and adjustments. In May and December 2017, ESH REIT sold two additional hotels for approximately $21.4 million. The carrying value of these hotels, including net working capital and allocable goodwill, was approximately $11.0 million, resulting in a net gain on sale of approximately $10.1 million, net of closing costs and adjustments.

None of the above dispositions were reported as discontinued operations. The table below summarizes the hotel dispositions described above (in thousands, except number of hotels and number of rooms):



Year	Brand	Location	Month Sold	Number of Hotels	Number of Rooms	Net Proceeds		(Loss) Gain Recognized
2018	Extended Stay America	Various	September	16	1,680	$	60,710	$	(16,704	)
2018	Extended Stay America	Various	September	16	1,776	$	58,144	$	(8,760	)
2018	Extended Stay America	Various	February	25	2,430	$	111,156	$	4,227
2018	Extended Stay America	Texas	March	1	101	$	44,090	$	30,992
2017	Extended Stay America	Colorado	December	1	160	$	15,985	$	11,836
2017	Extended Stay Canada	Canada	May	3	500	$	43,551	$	(1,507	)	⁽¹⁾
2017	Other	Massachusetts	May	1	103	$	5,092	$	(1,767	)

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(1)	Due to the fact that ESH REIT's Canadian subsidiary liquidated substantially all of its assets, approximately $12.5 million of accumulated foreign currency translation loss was recognized at the time of sale. An impairment charge of approximately $15.0 million was recorded prior to sale.

During the three and nine months ended September 30, 2018 and 2017, the disposed hotel properties contributed rental revenues, total operating expenses and income (loss) before income tax expense as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Rental revenues from Extended Stay America, Inc.	$	8,140	$	10,063	$	19,294	$	28,165
Total operating expenses	2,697		6,627		10,320		35,792			⁽¹⁾
Income (loss) before income tax expense	5,443		3,750		8,974		(7,000		)	⁽¹⁾

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(1)	Includes impairment charge of approximately $15.0 million related to three Canadian hotels.