RELATED PARTY TRANSACTIONS - REIT

6 Months Ended

Jun. 30, 2019

RELATED PARTY TRANSACTIONS

Revenues and Overhead Expenses

Leases and Rental Revenues—All revenues are generated as a result of, and earned from, related parties. During the three and six months ended June 30, 2019 and 2018, ESH REIT’s revenues were derived from three operating leases. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed rental revenues are recognized on a straight-line basis.

ESH REIT’s fixed and variable rental revenues for the three and six months ended June 30, 2019 and 2018 are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Fixed rental revenues	$	118,005	$	111,070	$	236,010	$	224,401
Variable rental revenues⁽¹⁾	97		462		97		462

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(1)	Regardless of whether cash rental payments are received, ESH REIT only recognizes revenue when a lessee’s revenue exceeds specific thresholds stated in the lease.

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,
Remainder of 2019	$	225,722
2020	462,860
2021	474,409
2022	486,247
2023	415,112
Total	$	2,064,350

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 three months ended June 30, 2019 and 2018, ESH REIT incurred costs of $2.3 million and $2.4 million, respectively, and for the six months ended June 30, 2019 and 2018, ESH REIT incurred costs of $4.8 million and $5.2 million, respectively, related to this agreement, which are included in general and administrative expenses in the accompanying 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 $0.3 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.6 million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively.

Debt and Equity Transactions

Unsecured Intercompany Facility—As of June 30, 2019 and December 31, 2018, there were no outstanding balances owed by ESH REIT to the Corporation under the Unsecured Intercompany Facility, and ESH REIT incurred no interest expense during the three and six months ended June 30, 2019 and 2018 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.

Distributions—During the three months ended June 30, 2019 and 2018, ESH REIT paid distributions of $35.1 million and $40.1 million, respectively, and during the six months ended June 30, 2019 and 2018, ESH REIT paid distributions of $72.6 million and $77.7 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT.

Issuance of Common Stock—In March 2019 and 2018, ESH REIT was compensated $1.2 million and $2.3 million, respectively, for the issuance of 0.2 million and 0.3 million shares of Class B common stock, respectively, 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”).

As of June 30, 2019, the Corporation has granted a total of 1.2 million RSUs, whereby, as a counterparty to these outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for 1.2 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 June 30, 2019 and December 31, 2018, include the following (in thousands):



	June 30, 2019			December 31, 2018
Leases:
Rents receivable⁽¹⁾	$	22,685		$	4,098
Deferred rents receivable⁽²⁾	$	18,925		$	8,637
Unearned rental revenues⁽¹⁾	$	(123,739	)	$	(37,506	)

Working capital and other:
Ordinary working capital⁽³⁾	$	(1,778	)	$	(12,581	)
Equity awards (payable) receivable⁽⁴⁾	(131		)	404
Total working capital and other, net⁽⁵⁾	$	(1,909	)	$	(12,177	)

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(1)	Rents receivable relate to percentage rents. As of June 30, 2019, unearned rental revenues related to July 2019 fixed minimum rent of $37.5 million and percentage rent of $86.2 million. As of December 31, 2018, unearned rental revenues related to January 2019 fixed minimum rent.


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


(3)	Disbursements and/or receipts made by the Corporation or ESH REIT on the other entity’s behalf and amounts payable/receivable for certain transactions between the Corporate and ESH REIT. Includes overhead costs incurred by the Corporation on ESH REIT’s behalf.


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

(5)

Outstanding balances are typically repaid within 30 days.