RELATED PARTY TRANSACTIONS

Revenues and Overhead Expenses

Leases and Rental Revenues—During the three and nine months ended September 30, 2018, ESH REIT’s revenues were derived from three leases. Prior to the sale of its Canadian branded hotels in May 2017, ESH REIT's revenues were derived from four leases. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed minimum rental revenues are recognized on a straight-line basis. For the three months ended September 30, 2018 and 2017, ESH REIT recognized fixed rental revenues of approximately $111.6 million and $114.7 million, respectively. For the nine months ended September 30, 2018 and 2017, ESH REIT recognized fixed rental revenues of approximately $336.0 million and $346.4 million, respectively. Due to the fact that percentage rental revenue thresholds specified in the leases were achieved during the second and third quarters of 2018 and 2017, ESH REIT recognized percentage rental revenues of approximately $31.3 million and approximately $28.7 million for the three months ended September 30, 2018 and 2017, respectively, and approximately $31.8 million and $28.9 million for the nine months ended September 30, 2018 and 2017, respectively.

Each lease agreement has an initial term that expires on October 31, 2018, and has been renewed for a five-year term that expires in October 2023. Upon renewal, the minimum and percentage rents were adjusted to reflect current arms-length terms.

Overhead Expenses—A wholly-owned subsidiary of the Corporation incurs costs under a services agreement between the Corporation and ESH REIT for certain overhead services performed on the entities' behalf. The services relate to executive management, accounting, financial analysis, training and technology. For the three months ended September 30, 2018 and 2017, ESH REIT incurred approximately $2.2 million and $2.4 million, respectively, and for each of the nine months ended September 30, 2018 and 2017, ESH REIT incurred approximately $7.4 million related to this agreement, which is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The expenses ESH REIT incurred under this services agreement include expenses related to certain employees that participate in the Corporation’s long-term incentive plan. Such charges were approximately $0.2 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively, and $0.7 million and $1.6 million for the nine months ended September 30, 2018 and 2017, respectively.

Debt and Equity Transactions

Unsecured Intercompany Facility—As of September 30, 2018 and December 31, 2017, there were no outstanding balances owed by ESH REIT to the Corporation under the Unsecured Intercompany Facility. ESH REIT incurred interest expense of $0 and $0.6 million during the three months ended September 30, 2018 and 2017, respectively, and $0 and $1.9 million during the nine months ended September 30, 2018 and 2017, respectively, related to the Unsecured Intercompany Facility. ESH REIT is able to borrow under the Unsecured Intercompany Facility an amount up to $300.0 million, plus additional amounts, in each case subject to certain conditions (see Note 6).

Distributions—The Corporation owns all of the Class A common stock of ESH REIT, which represents approximately 57% of the outstanding shares of common stock of ESH REIT. During the three and nine months ended September 30, 2018, ESH REIT paid distributions of approximately $45.1 million and $122.7 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT. During the three and nine months ended September 30, 2017, ESH REIT paid distributions of approximately $35.1 million and $107.7 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT.

Issuance of Common Stock—In September 2018 and 2017, ESH REIT issued and was compensated approximately $0.3 million and $0.2 million, respectively, for approximately 0.1 million shares of Class B common stock, each of which was attached to a share of Corporation common stock to form a Paired Share, used to settle vested restricted stock units ("RSUs"). In March 2018 and 2017, ESH REIT issued and was compensated approximately $2.3 million and $1.7 million, respectively, for approximately 0.3 million shares of Class B common stock, each of which was attached to a share of Corporation common stock to form a Paired Share, used to settle vested RSUs. Additionally, in September and March 2018, ESH REIT issued and was compensated approximately $0.1 million for approximately 9,000 shares and 5,100 shares, respectively, of Class B common stock issued during the nine months ended September 30, 2018, each of which was attached to a share of Corporation common stock to form a Paired Share, given to certain Corporation board members in lieu of cash payment for their services.

As of September 30, 2018, the Corporation has granted a total of approximately 0.9 million RSUs, whereby, as a counterparty to these outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for approximately 0.9 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.

Related Party Balances

Related party transaction balances as of September 30, 2018 and December 31, 2017, include the following (in thousands):



	September 30, 2018			December 31, 2017
Leases:
Rents receivable⁽¹⁾	$	21,300		$	3,704
Deferred rents receivable⁽²⁾	$	2,315		$	24,388
Unearned rental revenues⁽¹⁾	$	(183,695	)	$	(40,523	)

Working capital and other:
Ordinary working capital⁽³⁾	$	(12,457	)	$	(8,441	)
Equity awards (payable) receivable⁽⁴⁾	(144		)	1,386
Total working capital and other⁽⁵⁾	$	(12,601	)	$	(7,055	)

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(1)	Rents receivable relate to percentage rents. As of September 30, 2018, unearned rental revenues consisted of percentage rents of approximately $146.0 million and fixed minimum rents of approximately $37.7 million. As of December 31, 2017, unearned rental revenues consisted of fixed minimum rents.


(2)	Revenues recognized in excess of cash rents received. Amount will decrease over the initial lease terms to zero. Upon renewal, the minimum and percentage rents were adjusted to reflect current arms-length terms.


(3)	Represents disbursements and/or receipts made by the Corporation or ESH REIT on the other entity's behalf. Includes overhead costs incurred by the Corporation on ESH REIT's behalf.


(4)	Represents amounts related to restricted stock units not yet settled or issued.


(5)	Outstanding balances are typically repaid within 30 days.