Hotel Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2018

HOTEL ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

On May 30, 2018, the Company acquired an operating hotel from Legacy Rock Hill, LLC for $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. Legal, professional and other costs directly related to the acquisition were $0.2 million for the year ended December 31, 2018, and are included in general and administrative expenses in the accompanying 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 year ended December 31, 2018, the acquired hotel contributed $1.1 million in room and other hotel revenues and $0.1 million in income from operations. Prior to its acquisition by the Company, the hotel had opened in late 2017.

DISPOSITIONS

2018 Dispositions—In November 2018, the Company sold 14 hotels for $36.9 million. The carrying value of these hotels, including net working capital and allocable goodwill, net of impairment charges recorded prior to sale, was $34.6 million. This transaction resulted in a gain on sale of $1.3 million, net of closing costs and adjustments.

In September 2018, the Company sold a total of 32 hotels in two separate transactions for total gross proceeds of $122.6 million. The total carrying value of these hotels, including net working capital and allocable goodwill, net of impairment charges recorded prior to sale, was $116.9 million. These transactions resulted in a total gain on sale of $3.3 million, net of closing costs and adjustments.

In February 2018, the Company sold 25 hotels for $112.1 million. The carrying value of these hotels, including net working capital and allocable goodwill, net of impairment charges recorded prior to sale, was $104.7 million. In March 2018, the Company sold one hotel for $44.8 million. The carrying value of the hotel, including allocable goodwill, was $13.1 million. These transactions resulted in a total gain on sale of $37.9 million, net of closing costs and adjustments.

2017 Dispositions—In May 2017, the Company sold its three Extended Stay Canada-branded hotels for 76.0 million Canadian dollars, or $55.3 million. The carrying value of the hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to the sale, was 56.7 million Canadian dollars, or $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, $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 loss on sale of $1.9 million, net of closing costs and adjustments.

In May and December 2017, the Company sold two hotels for total gross proceeds of $21.4 million. The total carrying value of these hotels, including net working capital and allocable goodwill, net of an impairment charge recorded prior to sale, was $9.2 million, resulting in a total gain on sale of $11.9 million, net of closing costs and adjustments.

None of the above dispositions were reported as discontinued operations. The table below summarizes hotel dispositions for the years ended December 31, 2018 and 2017 (in thousands, except number of hotels and number of rooms). No hotels were sold during the year ended December 31, 2016.



Year	Brand	Location	Month Sold	Number of Hotels	Number of Rooms	Net Proceeds		Gain (Loss) on Sale				Franchised/Managed ⁽¹⁾
2018	Extended Stay America	Various	November	14	1,369	$	34,855	$	1,331		⁽²⁾	Yes
2018	Extended Stay America	Various	September	16	1,680	$	60,710	$	6,293		⁽²⁾	Yes
2018	Extended Stay America	Various	September	16	1,776	$	58,144	$	(3,014	)	⁽²⁾	Yes
2018	Extended Stay America	Various	February	25	2,430	$	111,156	$	6,810		⁽²⁾	Yes
2018	Extended Stay America	Texas	March	1	101	$	44,090	$	31,058			Yes	⁽³⁾
2017	Extended Stay America	Colorado	December	1	160	$	15,985	$	11,870			Yes	⁽³⁾
2017	Extended Stay Canada	Canada	May	3	500	$	43,551	$	(1,894	)	⁽⁴⁾	No
2017	Other	Massachusetts	May	1	103	$	5,092	$	(2	)	⁽²⁾	No

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(1)	As of December 31, 2018.


(2)	Net of impairment charge of $16.8 million, $24.3 million, $6.3 million, $2.1 million and $1.7 million, respectively, recognized prior to sale.


(3)	Remaining term of franchise or management agreement is less than one year.


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

During the years ended December 31, 2018, 2017 and 2016, disposed hotel properties contributed total room and other hotel revenues, total operating expenses and (loss) income before income tax expense as follows (in thousands):



	Year Ended December 31, 2018			Year Ended December 31, 2017			Year Ended December 31, 2016
Total room and other hotel revenues	$	53,494		$	102,593		$	111,015
Total operating expenses	83,336			104,511			96,222
(Loss) income before income tax expense ⁽¹⁾	(29,842		)	(1,605		)	15,127

_____________________


(1)	Includes impairment charges of $37.4 million, $19.2 million and $7.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

ESH REIT

Entity Information [Line Items]

Hotel Acquisitions and Dispositions

HOTEL ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

On May 30, 2018, ESH REIT acquired an operating hotel from Legacy Rock Hill, LLC for $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. Legal, professional and other costs directly related to the acquisition were $0.2 million for the year ended December 31, 2018 and are included in general and administrative expenses in the accompanying 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 $0.7 million and income from operations of $0.2 million for the year ended December 31, 2018. Prior to its acquisition by ESH REIT, the hotel had opened in late 2017.

DISPOSITIONS

2018 Dispositions—In November 2018, ESH REIT sold 14 hotels for $36.9 million. The carrying value of these hotels, including net working capital and allocable goodwill, was $50.9 million. This transaction resulted in a loss on sale of $14.9 million, net of closing costs and adjustments.

In September 2018, ESH REIT sold a total of 32 hotels in two separate transactions for total gross proceeds of $122.6 million. The total carrying value of these hotels, including net working capital and allocable goodwill, was $146.1 million. These transactions resulted in a total loss on sale of $26.0 million, net of closing costs and adjustments.

In February 2018, ESH REIT sold 25 hotels for $112.1 million. The carrying value of these hotels, including net working capital and allocable goodwill, was $107.2 million. In March 2018, ESH REIT sold one hotel for $44.8 million. The carrying value of the hotel, including allocable goodwill, was $13.2 million. These transactions resulted in a total gain on sale of $35.3 million, net of closing costs and adjustments.

2017 Dispositions—In May 2017, ESH REIT sold its three Extended Stay Canada-branded hotels for 67.4 million Canadian dollars, or $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 the sale, was 51.2 million Canadian dollars, or $37.3 million, prior to the evaluation of existing accumulated foreign currency translation loss. Due to the fact that ESH REIT’s Canadian subsidiary liquidated substantially all of its assets, $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 total loss on sale of the Canadian hotels of $1.5 million, net of closing costs and adjustments.

In May and December 2017, ESH REIT sold two hotels for total gross proceeds of $21.4 million. The total carrying value of these hotels, including net working capital and allocable goodwill, was $11.0 million, resulting in a total gain on sale of $10.1 million, net of closing costs and adjustments.



Year	Location	Month Sold	Number of Hotels	Number of Rooms	Net Proceeds		Gain (Loss) on Sale
2018	Various	November	14	1,369	$	34,855	$	(14,930	)
2018	Various	September	16	1,680	$	60,710	$	(17,025	)
2018	Various	September	16	1,776	$	58,144	$	(8,934	)
2018	Various	February	25	2,430	$	111,156	$	4,269
2018	Texas	March	1	101	$	44,090	$	30,992
2017	Colorado	December	1	160	$	15,985	$	11,836
2017	Canada	May	3	500	$	43,551	$	(1,507	)	⁽¹⁾
2017	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, $12.5 million of accumulated foreign currency translation loss was recognized at the time of sale. Additionally, an impairment charge of $15.0 million was recognized prior to sale.

During the years ended December 31, 2018, 2017 and 2016, disposed hotel properties contributed rental revenues, total operating expenses and income (loss) before income tax expense as follows (in thousands):



	Year Ended December 31, 2018		Year Ended December 31, 2017			Year Ended December 31, 2016
Rental revenues from Extended Stay America, Inc.	$	22,346	$	54,097		$	59,865
Total operating expenses	15,917		48,858			32,138
Income (loss) before income tax expense	6,429		5,552		⁽¹⁾	28,062

_________________________________


(1)	Includes impairment charge of $15.0 million.