RELATED PARTY TRANSACTIONS - REIT

3 Months Ended

Mar. 31, 2020

RELATED PARTY TRANSACTIONS

Revenues and Expenses

Leases and Rental Revenues—All revenues are generated as a result of, and earned from, three operating leases with related parties. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed and variable rental revenues for the three months ended March 31, 2020 and 2019 are as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Fixed rental revenues	$	119,190	$	118,005
Variable rental revenues⁽¹⁾	—		—

_________________________________

(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. Variable rental revenue thresholds were not achieved during the three months ended March 31, 2020 or 2019.

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


Years Ending December 31,
Remainder of 2020	$	350,521
2021	479,830
2022	491,866
2023	419,911


Total	$	1,742,128

Overhead Expenses—The Corporation incurs costs under a services agreement between the Corporation and ESH REIT for certain overhead services performed on each entities’ behalf. The services relate to executive management, accounting, financial analysis, training and technology. For the three months ended March 31, 2020 and 2019, ESH REIT incurred $2.9 million and $2.5 million, respectively, included in general and administrative expenses in the accompanying condensed consolidated statements of operations, related to these services. Expenses incurred under this services agreement also include expenses related to certain employees that participate in the Corporation’s long-term incentive plan. Such charges were $0.2 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively.

Debt and Equity Transactions

Unsecured Intercompany Facility—As of March 31, 2020 and December 31, 2019, 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 months ended March 31, 2020 and 2019 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 7).

Distributions—During the three months ended March 31, 2020 and 2019, ESH REIT paid distributions of $35.1 million and $37.6 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT.

Issuance of Common Stock—During the three months ended March 31, 2020 and 2019, ESH REIT was compensated $0.7 million and $1.2 million, respectively, for the issuance of 0.2 million 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 (“RSUs”).

As of March 31, 2020, the Corporation has granted a total of 1.1 million RSUs, whereby, as a counterparty to these outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for 1.1 million shares of Class B common stock of ESH REIT in future periods, assuming market-based awards vest at 100% and no forfeitures.

Related Party Balances

Related party transaction balances as of March 31, 2020 and December 31, 2019, include the following (in thousands):


	March 31, 2020		December 31, 2019
Leases:
Rents receivable⁽¹⁾	$	666	$	1,572
Deferred rents receivable⁽²⁾	$	31,429	$	28,917
Unearned rental revenues⁽¹⁾	$	(58,023)	$	(38,770)

Working capital and other:
Ordinary working capital⁽³⁾	$	(10,598)	$	(12,160)
Equity awards (payable) receivable⁽⁴⁾	(230)		322
Total working capital and other, net⁽⁵⁾	$	(10,828)	$	(11,838)

______________________

(1)Rents receivable relate to percentage rents. As of March 31, 2020, unearned rental revenues related to April 2020 fixed minimum rent of $38.8 million and percentage rent of $19.2 million. As of December 31, 2019, unearned rental revenues related to January 2020 fixed minimum rent.

(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 RSUs not yet settled or issued.

(5)Outstanding balances are typically repaid within 30 days.