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Equity-Based Compensation
 12 Months Ended
Dec. 31, 2018
Entity Information [Line Items]  
Equity-Based Compensation
EQUITY-BASED COMPENSATION
The Corporation and ESH REIT each maintain an LTIP, as amended and restated in 2015, approved by their shareholders. Under the LTIPs, the Corporation and ESH REIT may issue to eligible employees or directors RSUs or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIP has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of December 31, 2018, 5.1 million Paired Shares were available for future issuance under the LTIPs.
Equity-based compensation expense is recognized by amortizing the grant-date fair value on a straight-line basis over the requisite service period of each award. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Equity-based compensation expense was $7.7 million, $7.6 million and $12.0 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.
As of December 31, 2018, unrecognized compensation expense related to outstanding equity-based awards and the related weighted-average period over which it is expected to be recognized subsequent to December 31, 2018 is presented in the following table. Total unrecognized compensation expense will be adjusted for actual forfeitures.
 
Unrecognized
Compensation Expense
Related to Outstanding
Awards (in thousands)
 
Remaining Weighted-
Average Amortization
Period (in years)
RSAs/RSUs with service vesting conditions
$
5,632

 
1.8

RSUs with performance vesting conditions
—

 
—

RSUs with market vesting conditions
2,619

 
1.8

Total unrecognized compensation expense
$
8,251

 
 

RSA/RSU activity during the years ended December 31, 2018, 2017 and 2016, was as follows:
 
 
 
 
 
Performance-Based Awards
 
Service-Based Awards
 
Performance Vesting
 
Market Vesting
 
Number of
RSAs/RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value(1)
 
Number of
RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value
 
Number of
RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value(1)
Outstanding at January 1, 2016
992

 
$
18.24

 
19

 
$
19.07

 
556

 
$
6.81

Granted
536

 
$
14.08

 
166

 
$
14.07

 
441

 
$
12.03

Settled
(582
)
 
$
16.66

 
(19
)
 
$
19.07

 
—

 
$
—

Forfeited
(54
)
 
$
15.56

 
(47
)
 
$
14.07

 
(25
)
 
$
13.19

Outstanding at December 31, 2016
892

 
$
16.93

 
119

 
$
14.07

 
972

 
$
9.01

Granted
272

 
$
17.51

 
192

 
$
17.45

 
104

 
$
18.58

Settled
(417
)
 
$
17.75

 
(119
)
 
$
14.07

 
—

 
$
—

Forfeited
(145
)
 
$
15.13

 
(39
)
 
$
17.45

 
(865
)
 
$
8.35

Outstanding at December 31, 2017
602

 
$
17.06

 
153

 
$
17.45

 
211

 
$
16.46

Granted
401

 
$
19.42

 
57

 
$
19.52

 
204

 
$
17.41

Settled
(399
)
 
$
17.46

 
(153
)
 
$
17.45

 
(41
)
 
$
20.76

Forfeited
(81
)
 
$
18.05

 
(25
)
 
$
19.52

 
(77
)
 
$
15.36

Outstanding at December 31, 2018
523

 
$
18.42

 
32

 
$
19.52

 
297

 
$
16.79

 
 
 
 
 
 
 
 
 
 
 
 
Vested at December 31, 2017
46

 
$
23.66

 
145

 
$
17.45

 
41

 
$
20.76

Nonvested at December 31, 2017
556

 
$
18.46

 
—

 
$
—

 
170

 
$
20.48

 
 
 
 
 
 
 
 
 
 
 
 
Vested at December 31, 2018
7

 
$
19.11

 
32

 
$
19.52

 
50

 
$
12.03

Nonvested at December 31, 2018
516

 
$
18.41

 
—

 
$
—

 
247

 
$
17.75

_____________________
(1)
An independent valuation was performed contemporaneously with the issuance of grants.
The grant-date fair value of awards with service vesting conditions is based on the closing price of a Paired Share on the date of grant. Service-based awards vest over a period of two to four years, subject to the grantee’s continued employment or service. The grant-date fair value of awards with performance vesting conditions is based on the closing price of a Paired Share on the date of grant. Equity-based compensation expense with respect to these awards is adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements. These awards vest over a one-year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 200% of the awarded number of RSUs based on the achievement of defined performance targets. The grant-date fair value of awards with market vesting conditions is based on an independent third-party valuation. These awards vest at the end of a three-year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 150% of the awarded number of RSUs based on the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreements. During the year ended December 31, 2018, the grant-date fair value of awards with market vesting conditions were calculated using a Monte Carlo simulation model with the following key assumptions:
Expected holding period
2.86 years

Risk–free rate of return
2.37
%
Expected dividend yield
4.61
%
ESH REIT  
Entity Information [Line Items]  
Equity-Based Compensation
EQUITY-BASED COMPENSATION
The Corporation and ESH REIT each maintain an LTIP, as amended and restated in 2015, approved by their shareholders. Under the LTIPs, the Corporation and ESH REIT may issue to eligible employees or directors RSUs or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIP has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of December 31, 2018, 5.1 million Paired Shares were available for future issuance under the LTIPs.
Equity-based compensation expense is recognized by amortizing the grant-date fair value on a straight-line basis over the requisite service period of each award. The grant-date fair value of awards is based on the closing price of a Paired Share on the date of grant. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Expense related to the portion of the grant-date fair value with respect to a share of Corporation common stock is recorded as a payable due to the Corporation. Expense related to the portion of the grant-date fair value with respect to a share of ESH REIT Class B common stock is recorded as an increase to additional paid in capital. Equity-based compensation expense totaled $0.6 million, $0.4 million and $0.1 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.
As of December 31, 2018, there was $0.2 million of unrecognized compensation expense related to outstanding equity-based awards, which is expected to be recognized subsequent to December 31, 2018 over a weighted-average period of 0.4 years. Total unrecognized compensation expense will be adjusted for actual forfeitures.
ESH REIT will have to pay more or less for a share of the Corporation common stock than it would have otherwise paid at the time of grant as the result of regular market changes in the value of a Paired Share between the time of grant and the time of settlement. An increase in the value allocated to a share of common stock of the Corporation due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as a distribution to the Corporation. A decrease in the value allocated to a share of common stock of the Corporation due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as additional paid in capital from the Corporation.
The Corporation accounts for awards issued under its LTIP in a manner similar to ESH REIT. For all LTIP awards granted by the Corporation, ESH REIT will receive compensation for the fair value of the Class B shares on the date of settlement of such Class B shares by ESH REIT. As of December 31, 2018, the Corporation has granted a total of 3.8 million service-based, performance-based and market-based RSUs, of which 3.0 million RSUs were either forfeited or settled. As a counterparty to the remaining outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for 0.8 million shares of Class B common stock of ESH REIT in future periods, assuming performance-based awards vest at 100% and no forfeitures.
RSU activity (all of which relates to awards with service vesting conditions) during the years ended December 31, 2018, 2017 and 2016, was as follows:
 
Number of
RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value
Outstanding at January 1, 2016
244

 
$
9.71

Granted
15

 
$
14.08

Settled
(231
)
 
$
9.40

Forfeited
—

 
$
—

Outstanding at December 31, 2016
28

 
$
14.57

Granted
26

 
$
17.56

Settled
(15
)
 
$
13.66

Forfeited
—

 
$
—

Outstanding at December 31, 2017
39

 
$
16.91

Granted
28

 
$
19.48

Settled
(34
)
 
$
17.32

Forfeited
—

 
$
—

Outstanding at December 31, 2018
33

 
$
18.68

 
 
 
 
Vested at December 31, 2017
—

 
$
—

Nonvested at December 31, 2017
39

 
$
16.91

 
 
 
 
Vested at December 31, 2018
—

 
$
—

Nonvested at December 31, 2018
33

 
$
18.68