Property and Equipment

12 Months Ended

Dec. 31, 2018

PROPERTY AND EQUIPMENT

Net investment in property and equipment as of December 31, 2018 and 2017, consists of the following (in thousands):



	December 31, 2018			December 31, 2017
Hotel properties:
Land and site improvements ⁽¹⁾	$	1,215,710		$	1,286,784
Building and improvements	2,729,661			2,934,048
Furniture, fixtures and equipment	674,545			649,487
Total hotel properties	4,619,916			4,870,319
Development in process ⁽²⁾	27,174			2,453
Corporate furniture, fixtures, equipment, software and other	22,972			21,486
Undeveloped land parcel	1,675			1,675
Total cost	4,671,737			4,895,933
Less accumulated depreciation:
Hotel properties	(1,201,260		)	(1,128,465		)
Corporate furniture, fixtures, equipment, software and other	(16,845		)	(14,334		)
Total accumulated depreciation	(1,218,105		)	(1,142,799		)
Property and equipment—net	$	3,453,632		$	3,753,134

_________________________________


(1)	Includes capital lease asset of $3.2 million and $0 as of December 31, 2018 and 2017, respectively.


(2)	Includes capital lease asset of $0.6 million and $0 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, development in process consists of 11 land parcels that are in various phases of construction and/or development.

In September 2018, the Company acquired a hotel under construction from Legacy Greenville, LLC for $12.3 million. Because the hotel had not yet opened at the date of acquisition, the transaction was accounted for as an acquisition of assets rather than a business combination under ASC 805, Business Combinations. The hotel opened and was placed in service during the fourth quarter of 2018.

During the year ended December 31, 2018, the Company recognized impairment charges totaling $43.6 million for 21 hotels, generally located in the Midwestern U.S., the majority of which were incurred with evaluating the potential sale of certain non-core assets. During the year ended December 31, 2017, the Company recognized impairment charges for nine hotels that totaled $25.2 million, $12.4 million of which related to Extended Stay Canada-branded hotels. During the year ended December 31, 2016, the Company recognized impairment charges for three hotels that totaled $9.8 million.

The Company used Level 3 unobservable inputs and, in certain instances Level 2 observable inputs, to determine the impairment on its property and equipment. Quantitative information with respect to observable inputs consists of non-binding bids or, in certain instances, binding agreements to sell a hotel or portfolio of hotels to one or more third parties. Quantitative information with respect to unobservable inputs consists of internally developed cash flow models that include the following assumptions, among others: projections of revenues, expenses and hotel-related cash flows based on assumed long-term growth rates, demand trends, expected future capital expenditures and estimated discount rates that range from 6% to 10% and terminal capitalization rates that range from 7% to 11%. These assumptions are based on the Company’s historical data and experience, the Company’s budgets, industry projections and overall micro and macro economic projections.

The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating and economic performance, and current and future market conditions. It is possible that such judgments and/or estimates will change; if this occurs, the Company may recognize additional impairment charges or losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets.

ESH REIT

Entity Information [Line Items]

Property and Equipment

PROPERTY AND EQUIPMENT

Net investment in property and equipment as of December 31, 2018 and 2017, consists of the following (in thousands):



	December 31, 2018			December 31, 2017
Hotel properties:
Land and site improvements ⁽¹⁾	$	1,218,077		$	1,289,152
Building and improvements	2,756,674			2,970,404
Furniture, fixtures and equipment	679,944			655,120
Total hotel properties	4,654,695			4,914,676
Development in process ⁽²⁾	27,174			2,453
Undeveloped land parcel	1,675			1,675
Total cost	4,683,544			4,918,804
Less accumulated depreciation	(1,215,899		)	(1,143,164		)
Property and equipment - net	$	3,467,645		$	3,775,640

_________________________________


(1)	Includes capital lease asset of $3.2 million and $0 as of December 31, 2018 and 2017, respectively.


(2)	Includes capital lease asset of $0.6 million and $0 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, development in process consists of 11 land parcels that are in various phases of construction and/or development.

In September 2018, ESH REIT acquired a hotel under construction from Legacy Greenville, LLC for $12.3 million. Because the hotel had not yet opened at the date of acquisition, the transaction was accounted for as an acquisition of assets rather than a business combination under ASC 805, Business Combinations. The hotel was placed in service and leased in the fourth quarter of 2018.

No impairment charges were recognized during the year ended December 31, 2018. During the year ended December 31, 2017, ESH REIT recognized $15.0 million of impairment charges related to its Canadian hotels. No impairment charges were recognized during the year ended December 31, 2016.

ESH REIT used Level 3 unobservable inputs and, in certain instances Level 2 observable inputs, to determine the impairment on its property and equipment. Quantitative information with respect to observable inputs consists of non-binding bids or, in certain instances, binding agreements to sell a hotel or portfolio of hotels to one or more third parties. Quantitative information with respect to unobservable inputs consists of internally developed cash flow models that include the following assumptions, among others: projections of revenues, expenses and hotel-related cash flows based on assumed long-term growth rates, demand trends, expected future capital expenditures and estimated discount rates. These assumptions are based on ESH REIT’s historical data and experience, budgets, industry projections and overall micro and macro economic projections.

The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating and economic performance, and current and future market conditions. It is possible that such judgments and/or estimates will change; if this occurs, ESH REIT may recognize impairment charges or losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets.