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Commitments and Contingencies - REIT

12 Months Ended

Dec. 31, 2019

COMMITMENTS AND CONTINGENCIES

Lease Commitments—The Company is a tenant under long-term ground leases at five of its hotel properties, including one hotel site for which development is in process. Three of these leases are operating leases and two are finance leases. The ground lease agreements terminate at various dates between 2023 and 2096 and several of the agreements include multiple renewal options for generally five or ten year periods. The Company is also a tenant under an operating lease for its corporate office, which terminates in August 2021 and includes renewal options for two five-year terms. As the Company is reasonably certain that it will exercise the options to extend its ground leases, fixed payments associated with the extensions are included in the measurement of related right-of-use assets and lease liabilities. Payments associated with the option to extend the corporate office lease are not included in the measurement of the right-of-use asset and lease liability, as the associated payments cannot be reasonably estimated.

Operating lease costs related to ground leases are included in hotel operating expenses, while operating lease costs related to the Company’s office lease are included in general and administrative expenses, in the consolidated statements of operations. Finance lease interest costs are included in interest expense, net in the consolidated statements of operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the consolidated balance sheets (see Note 5). As the Company’s finance lease right-of-use assets pertain to land and land under development, and as the Company elected the practical expedient to retain prior lease classification upon adoption of ASC 842, Leases, no amortization costs related to finance leases were incurred during the year ended December 31, 2019. The Company has no variable lease costs or short-term leases.

For the year ended in December 31, 2019, components of the Company's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	3,119
Finance lease costs - interest	242
Total lease costs	$	3,361

Rent expense on operating leases was $3.2 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight-line basis.

The Company’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	4,863	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	12,590		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	2,899		$	386
2021	2,220			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	84,567		$	5,080

Total discounted lease liability	$	12,590		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,977		$	1,701

Weighted-average remaining lease term	43 years			12 years
Weighted-average discount rate	6.3		%	7.0		%

The Company's leases do not contain residual value guarantees and do not contain restrictions with respect to incurring additional financial obligations or paying dividends. As of December 31, 2019, the Company does not have any material leases that have not yet commenced.

Letter of Credit—As of December 31, 2019, the Company had one outstanding letter of credit, issued by the Corporation for $0.2 million, which is collateralized by the Corporation Revolving Credit Facility.

Legal Contingencies—As of December 31, 2019, six purported class action lawsuits in California have been filed against the Company. The complaints allege, among other things, failure to provide meal and rest periods, wage and hour violations and violations of the Fair Credit Reporting Act. The complaints seek, among other relief, collective and class certification of the lawsuits, unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper.

With respect to the Fair Credit Reporting Act violations alleged in the lawsuits described above, the parties reached a tentative settlement agreement in May 2019, which is subject to certain conditions, including court approval. During the year ended December 31, 2019, the Company recorded a payable and a corresponding insurance receivable for the amount of the tentative settlement. The expected resolution of the alleged Fair Credit Reporting Act violations in the lawsuits did not have,

and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

With respect to the meal and rest period and the wage and hour violations alleged in the lawsuits described above, excluding one lawsuit, the parties reached a tentative settlement agreement in January 2020, which is subject to certain conditions, including court approval. During the fourth quarter of 2019, the Company incurred a loss and recorded a charge equal to the amount of the tentative settlement. The expected resolution of the alleged meal and rest period and wage and hour violations in the lawsuits did not have, and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

With respect to one lawsuit, although the Company believes it is reasonably possible that it may incur losses associated with such matter, it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements or other resolution based on the early stage of the lawsuit, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and the lack of resolution of significant factual and legal issues. However, depending on the amount and timing, an unfavorable resolution of the lawsuit or a change in the Company's assessment of the likelihood of loss could have a material adverse effect on the Company’s consolidated financial statements, results of operations or liquidity in a future period. We believe that we have meritorious defenses and are prepared to vigorously defend the lawsuit.

The Company is not a party to any additional litigation or claims, other than routine matters arising in the ordinary course of business that are incidental to the operation of the business of the Company. The Company believes that the results of all additional litigation and claims, individually or in the aggregate, will not have a material adverse effect on its consolidated financial statements, results of operations or liquidity.

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

For the year ended in December 31, 2019, components of the Company's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	3,119
Finance lease costs - interest	242
Total lease costs	$	3,361

Rent expense on operating leases was $3.2 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight-line basis.

The Company’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	4,863	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	12,590		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	2,899		$	386
2021	2,220			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	84,567		$	5,080

Total discounted lease liability	$	12,590		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,977		$	1,701

Weighted-average remaining lease term	43 years			12 years
Weighted-average discount rate	6.3		%	7.0		%

and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

For the year ended in December 31, 2019, components of the Company's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	3,119
Finance lease costs - interest	242
Total lease costs	$	3,361

Rent expense on operating leases was $3.2 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight-line basis.

The Company’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	4,863	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	12,590		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	2,899		$	386
2021	2,220			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	84,567		$	5,080

Total discounted lease liability	$	12,590		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,977		$	1,701

Weighted-average remaining lease term	43 years			12 years
Weighted-average discount rate	6.3		%	7.0		%

and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

ESH Hospitality, Inc.

Entity Information [Line Items]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Lease Commitments—ESH REIT is a tenant under long-term ground leases at five of its hotel properties, including one hotel site for which development is in process. Three of these leases are operating leases and two are finance leases. The ground lease agreements terminate at various dates between 2023 and 2096 and several of the agreements include multiple renewal options for generally five or ten year periods. As ESH REIT is reasonably certain that it will exercise the options to extend its ground leases, fixed payments associated with the extensions are included in the measurement of related right-of-use assets and lease liabilities.

Operating lease costs related to ground leases are included in hotel operating expenses in the consolidated statements of operations. Finance lease interest costs are included in interest expense, net in the consolidated statements of operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the

consolidated balance sheets (see Note 5). As ESH REIT's finance lease right-of-use assets pertain to land and land under development, and as ESH REIT elected the practical expedient to retain prior lease classification upon adoption of ASC 842, Leases, no amortization costs related to finance leases were incurred during the year ended December 31, 2019. ESH REIT has no variable lease costs or short-term leases.

For the year ended in December 31, 2019, components of ESH REIT's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	1,348
Finance lease costs - interest	242
Total lease costs	$	1,590

Rent expense on operating leases was $1.5 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight line basis.

ESH REIT’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	2,084	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	9,207		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	779		$	386
2021	784			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	81,011		$	5,080

Total discounted lease liability	$	9,207		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,804		$	1,701

Weighted-average remaining lease term	58 years			12 years
Weighted-average discount rate	6.6		%	7.0		%

ESH REIT's leases do not contain residual value guarantees and do not contain restrictions with respect to incurring additional financial obligations or paying dividends. As of December 31, 2019, ESH REIT does not have any material leases that have not yet commenced.

Legal Contingencies—ESH REIT is not a party to any litigation or claims, other than routine matters arising in the ordinary course of business that are incidental to the operation of the business. ESH REIT believes that the results of all claims and litigation, individually or in the aggregate, will not have a material adverse effect on its consolidated financial statements, results of operations or liquidity.

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

For the year ended in December 31, 2019, components of ESH REIT's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	1,348
Finance lease costs - interest	242
Total lease costs	$	1,590

Rent expense on operating leases was $1.5 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight line basis.

ESH REIT’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	2,084	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	9,207		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	779		$	386
2021	784			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	81,011		$	5,080

Total discounted lease liability	$	9,207		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,804		$	1,701

Weighted-average remaining lease term	58 years			12 years
Weighted-average discount rate	6.6		%	7.0		%

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

For the year ended in December 31, 2019, components of ESH REIT's total lease costs are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease costs	$	1,348
Finance lease costs - interest	242
Total lease costs	$	1,590

Rent expense on operating leases was $1.5 million for each of the years ended December 31, 2018 and 2017 and was recognized on a straight line basis.

ESH REIT’s right-of-use assets and lease liabilities are as follows (in thousands):


	December 31,
	2019		2018 ⁽⁴⁾
Right-of-use assets:
Operating⁽¹⁾	$	2,084	$	—
Finance ⁽²⁾	3,979		3,843

Lease liabilities:
Operating ⁽³⁾	9,207		—
Finance	3,379		3,360

_________________________________

(1) Included in other assets on the accompanying consolidated balance sheets.

(2) Included in property and equipment, net on the accompanying consolidated balance sheets.

(3) Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

(4) Finance lease right-of-use assets and liabilities as of December 31, 2018, were previously classified as capital lease assets and liabilities under ASC

840, Leases.

Maturities of lease liabilities as of December 31, 2019, are as follows (in thousands):


Years Ending December 31,	Operating Leases			Finance Leases
2020	$	779		$	386
2021	784			395
2022	806			397
2023	545			400
2024	503			402
Thereafter	77,594			3,100
Total	$	81,011		$	5,080

Total discounted lease liability	$	9,207		$	3,379
Difference between undiscounted cash flows and discounted cash flows	$	71,804		$	1,701

Weighted-average remaining lease term	58 years			12 years
Weighted-average discount rate	6.6		%	7.0		%