RELATED PARTY TRANSACTIONS

Revenues and Overhead Expenses

Leases and Rental Revenues—All revenues are generated as a result of, and earned from, related parties. From May 1, 2017 through December 31, 2018, ESH REIT’s revenues were derived from three leases. Prior to the sale of its Extended Stay Canada-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 rental revenues are recognized on a straight-line basis. For the years ended December 31, 2018, 2017 and 2016, ESH REIT recognized fixed rental revenues of $450.3 million, $461.2 million and $465.2 million, respectively. ESH REIT recognized $217.2 million, $222.3 million and $229.1 million of percentage rental revenues for the years ended December 31, 2018, 2017 and 2016, respectively.

Each lease agreement, which had an initial term that expired in October 2018, was renewed effective November 1, 2018, for a five-year term that expires in October 2023. Upon renewal, minimum and percentage rents were adjusted to reflect then-current market terms. Each lease contains an automatic five-year renewal, unless lessee provides notice that it will not renew no later than thirty months prior to expiration. Future fixed rental payments to be received under current remaining noncancelable lease terms are as follows (in thousands):



Years Ending December 31,
2019	$	451,445
2020	462,860
2021	474,409
2022	486,247
2023	415,112
Total	$	2,290,073

Overhead Expenses—A wholly-owned subsidiary of the Corporation incurs costs under a services agreement with 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 years ended December 31, 2018, 2017 and 2016, ESH REIT incurred $9.8 million, $8.5 million and $8.8 million, respectively, related to this agreement, which is included in general and administrative expenses in the accompanying 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 (as described in Note 13). Such charges were $0.9 million, $1.1 million and $1.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Debt and Equity Transactions

Share Repurchases—During the year ended December 31, 2017, ESH REIT repurchased and retired 2.0 million Class B common shares from investment funds and affiliates of Paulson & Co. Inc., Centerbridge Partners, L.P. and The Blackstone Group L.P., each members of ESH REIT’s former ownership group, for $12.2 million. These shares were purchased in connection with secondary offerings consummated during the year ended December 31, 2017 and pursuant to, and counted toward, the combined Paired Share repurchase program (see Note 10).

Unsecured Intercompany Facility—As of December 31, 2018 and 2017, there were no outstanding balances owed by ESH REIT to the Corporation under the Unsecured Intercompany Facility. During the years ended December 31, 2018, 2017 and 2016, ESH REIT incurred $0, $2.4 million and $1.3 million, respectively, in interest expense related to the Unsecured Intercompany Facility. ESH REIT is able to borrow under the Unsecured Intercompany Facility 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 years ended December 31, 2018, 2017 and 2016, ESH REIT paid distributions of $157.8 million, $132.8 million, and $155.3 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT.

Issuance of Common Stock—During the year ended December 31, 2018, ESH REIT was compensated $2.6 million for the issuance of approximately 364,000 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. During the year ended December 31, 2017, ESH REIT was compensated $1.9 million for the issuance of approximately 309,000 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. During the year ended December 31, 2016, ESH REIT was compensated $1.3 million for the issuance of approximately 224,000 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.

As of December 31, 2018, approximately 89,000 RSUs issued by the Corporation have vested but have not been settled, for which ESH REIT has recognized a receivable of $0.4 million, which is included as a component of due to Extended Stay America, Inc., net on the accompanying consolidated balance sheets. In March 2019, in accordance with the awards’ settlement provisions, ESH REIT expects to issue and be compensated for the issuance of the corresponding shares of Class B common stock, each of which will be attached to a share of common stock of the Corporation to form a Paired Share.

As of December 31, 2017, approximately 232,000 RSUs issued by the Corporation had vested but had not been settled, for which ESH REIT had recognized a receivable of $1.4 million, which is included as a component of due to Extended Stay America, Inc. on the accompanying consolidated balance sheets. In March 2018, in accordance with the awards’ settlement provisions, ESH REIT issued and was compensated for the issuance of the corresponding shares of Class B common stock, each of which was attached to a share of common stock of the Corporation to form a Paired Share.

Related Party Transaction Balances

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



	December 31, 2018			December 31, 2017
Leases:
Rents receivable⁽¹⁾	$	4,099		$	3,704
Deferred rents receivable⁽²⁾	$	8,637		$	24,388
Unearned rental revenues⁽¹⁾	$	(37,506	)	$	(40,523	)

Working capital and other:
Ordinary working capital⁽³⁾	$	(12,581	)	$	(8,441	)
Equity awards receivable⁽⁴⁾	403			1,386
Total working capital and other, net⁽⁵⁾	$	(12,178	)	$	(7,055	)

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(1)	Rents receivable relate to percentage rents. Unearned rental revenues relate to January 2019 and 2018 fixed minimum rents, respectively.


(2)	Revenues recognized in excess of cash rents received.


(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.