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Actionable news in STAY: EXTENDED STAY AMERICA Inc,

SECURITIES AND EXCHANGE COMMISSION

DelawareDelaware
(State or other jurisdiction ofincorporation or organization)(State or other jurisdiction ofincorporation or organization)
46-314031227-3559821
(I.R.S. EmployerIdentification No.)(I.R.S. EmployerIdentification No.)
11525 N. Community House Road, Suite 100Charlotte, North Carolina 2827711525 N. Community House Road, Suite 100Charlotte, North Carolina 28277
(Address of principal executive offices, zip code)(Address of principal executive offices, zip code)
(980) 345-1600(980) 345-1600
(Registrant’s telephone number, including area code)(Registrant’s telephone number, including area code)
Extended Stay America, Inc.Large accelerated filerxAccelerated filer¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting company¨
Emerging growth company¨¨
ESH Hospitality, Inc.Large accelerated filerxAccelerated filer¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting company¨
Emerging growth company¨¨
Page No.
ABOUT THIS COMBINED QUARTERLY REPORT1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS2
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements3
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)3
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 20163
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 20164
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 20165
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 20166
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 20167
Notes to Condensed Consolidated Financial Statements8
ESH HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)25
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 201625
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 201626
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 201627
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 201628
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 201629
Notes to Condensed Consolidated Financial Statements30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations45
Item 3. Quantitative and Qualitative Disclosures About Market Risk70
Item 4. Controls and Procedures70
PART II — OTHER INFORMATION
Item 1. Legal Proceedings72
Item 1A. Risk Factors72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds72
Item 3. Defaults Upon Senior Securities72
Item 4. Mine Safety Disclosures72
Item 5. Other Information72
Item 6. Exhibits73
Enhances investors’ understanding of the Corporation and ESH REIT by enabling investors, whose ownership of Paired Shares, as defined herein, gives them an ownership interest in our hotel properties through ESH REIT and in the operation of the hotels and other aspects of our business through the Corporation, to view the business as a whole;
Eliminates duplicative and potentially confusing disclosure and provides a more streamlined presentation, since a substantial amount of our disclosure applies to both the Corporation and ESH REIT; and
Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
September 30,
2017
December 31,
2016
ASSETS
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,094,064 and $973,669$3,790,365
$3,905,304
CASH AND CASH EQUIVALENTS116,660
84,158
RESTRICTED CASH21,370
21,614
INTANGIBLE ASSETS - Net of accumulated amortization of $9,355 and $8,35027,378
28,383
GOODWILL48,910
53,531
ACCOUNTS RECEIVABLE - Net of allowance for doubtful accounts of $2,598 and $2,63427,418
20,837
DEFERRED TAX ASSETS11,913
16,376
OTHER ASSETS67,140
50,101
TOTAL ASSETS$4,111,154
$4,180,304
LIABILITIES AND EQUITY

LIABILITIES:

Term loan facilities payable - Net of unamortized deferred financing costs and debt discount
of $19,520 and $21,994
$1,267,504
$1,274,756
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $31,379 and $34,482
1,268,621
1,265,518
Revolving credit facilities
45,000
Mandatorily redeemable preferred stock - $0.01 par value, $1,000 redemption value,
8.0%, 350,000,000 shares authorized, 7,133 and 21,202 shares issued and outstanding
7,133
21,202
Accounts payable and accrued liabilities219,481
193,303
Deferred tax liabilities
3,286
Total liabilities2,762,739
2,803,065
COMMITMENTS AND CONTINGENCIES (Note 12)

EQUITY:

Common stock - $0.01 par value, 3,500,000,000 shares authorized, 192,293,933 and
195,406,944 shares issued and outstanding
1,923
1,957
Additional paid in capital770,314
774,811
Retained earnings80,038
23,679
Accumulated other comprehensive income (loss)1,980
(5,615)
Total Extended Stay America, Inc. shareholders’ equity854,255
794,832
Noncontrolling interests494,160
582,407
Total equity1,348,415
1,377,239
TOTAL LIABILITIES AND EQUITY$4,111,154
$4,180,304

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
REVENUES:



Room revenues$345,089
$349,076
$963,505
$960,046
Other hotel revenues5,777
5,445
16,715
14,822
Total revenues350,866
354,521
980,220
974,868
OPERATING EXPENSES:



Hotel operating expenses152,155
149,860
442,726
444,498
General and administrative expenses23,823
24,612
75,560
73,552
Depreciation and amortization57,314
55,955
172,789
164,274
Impairment of long-lived assets
2,756
20,357
2,756
Total operating expenses233,292
233,183
711,432
685,080
LOSS ON SALE OF HOTEL PROPERTIES (Note 4)

(1,897)
OTHER INCOME344
2
2,400
20
INCOME FROM OPERATIONS117,918
121,340
269,291
289,808
OTHER NON-OPERATING INCOME(278)(305)(426)(1,069)
INTEREST EXPENSE, NET31,651
48,713
96,958
131,462
INCOME BEFORE INCOME TAX EXPENSE86,545
72,932
172,759
159,415
INCOME TAX EXPENSE20,295
15,867
40,721
26,211
NET INCOME66,250
57,065
132,038
133,204
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(12,374)(10,509)(3,286)(8,873)
NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS$53,876
$46,556
$128,752
$124,331
NET INCOME PER EXTENDED STAY AMERICA, INC. COMMON SHARE:



Basic$0.28
$0.23
$0.67
$0.62
Diluted$0.28
$0.23
$0.66
$0.61
WEIGHTED-AVERAGE EXTENDED STAY AMERICA, INC. COMMON SHARES OUTSTANDING:



Basic192,357
200,556
193,399
202,156
Diluted193,331
200,696
194,001
202,252
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
NET INCOME$66,250
$57,065
$132,038
$133,204
OTHER COMPREHENSIVE INCOME, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
FOREIGN CURRENCY TRANSLATION GAIN (LOSS), NET OF TAX OF $0, $(274), $(125) and $55065
(841)470
1,831
RECLASSIFICATION ADJUSTMENT - SALE OF CANADIAN HOTEL PROPERTIES, NET OF TAX OF $0, $0, $(3,599) AND $0

10,913

TOTAL FOREIGN CURRENCY TRANSLATION ADJUSTMENTS65
(841)11,383
1,831
DERIVATIVE ADJUSTMENTS:
INTEREST RATE CASH FLOW HEDGE LOSS, NET OF TAX
OF $25, $(123), $57 and $(123)
(16)(446)(509)(446)
RECLASSIFICATION ADJUSTMENT - AMOUNTS RECLASSIFIED TO NET INCOME, NET OF TAX OF $0103

706

TOTAL DERIVATIVE ADJUSTMENTS87
(446)197
(446)
COMPREHENSIVE INCOME66,402
55,778
143,618
134,589
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(12,423)(9,857)(7,271)(9,575)
COMPREHENSIVE INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS$53,979
$45,921
$136,347
$125,014
Common StockAdditionalPaid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotalExtended Stay America, Inc. Shareholders' EquityNon-controlling InterestsTotalEquity
SharesAmount
January 1, 2016204,594
$2,049
$784,194
$102,184
$(8,754)$879,673
$608,684
$1,488,357
Net income


124,331

124,331
8,873
133,204
Foreign currency translation, net of tax



876
876
955
1,831
Interest rate cash flow hedge loss, net of tax



(193)(193)(253)(446)
Issuance of common stock4

6


6

6
Repurchase of Corporation common stock and ESH REIT Class B common stock (Paired Shares)(4,622)(46)
(42,602)
(42,648)(26,952)(69,600)
Corporation common distributions - $0.15 per common share


(30,430)
(30,430)
(30,430)
ESH REIT common distributions - $0.40 per Class B common share





(81,623)(81,623)
ESH REIT preferred distributions





(12)(12)
Adjustment to noncontrolling interest for change in ownership of ESH REIT

(6,090)

(6,090)6,090

Equity-based compensation224
2
2,893


2,895
3,511
6,406
BALANCE - September 30, 2016200,200
$2,005
$781,003
$153,483
$(8,071)$928,420
$519,273
$1,447,693
Common StockAdditionalPaid in CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotalExtended Stay America, Inc. Shareholders' EquityNon-controlling InterestsTotalEquity
SharesAmount
BALANCE - January 1, 2017195,407
$1,957
$774,811
$23,679
$(5,615)$794,832
$582,407
$1,377,239
Net income


128,752

128,752
3,286
132,038
Foreign currency translation, net of tax



7,507
7,507
3,876
11,383
Interest rate cash flow hedge gain, net of tax



88
88
109
197
Repurchase of Corporation common stock and ESH REIT Class B common stock (Paired Shares)(3,430)(37)
(37,253)
(37,290)(21,491)(58,781)
Corporation common distributions - $0.18 per common share


(35,140)
(35,140)
(35,140)
ESH REIT common distributions - $0.43 per Class B common share





(83,975)(83,975)
ESH REIT preferred distributions





(12)(12)
Adjustment to noncontrolling interest for change in ownership of ESH REIT

(6,627)

(6,627)6,627

Equity-based compensation317
3
2,130


2,133
3,333
5,466
BALANCE - September 30, 2017192,294
$1,923
$770,314
$80,038
$1,980
$854,255
$494,160
$1,348,415
Nine Months Ended
September 30,
20172016
OPERATING ACTIVITIES:
Net income$132,038
$133,204
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation171,784
163,269
Amortization of intangible assets1,005
1,005
Foreign currency transaction gain(782)(1,069)
Loss on interest rate swap709

Amortization and write-off of deferred financing costs and debt discount6,072
29,012
Amortization of above-market ground leases(102)(102)
Loss on disposal of property and equipment8,065
7,255
Loss on sale of hotel properties1,897

Impairment of long-lived assets20,357
2,756
Equity-based compensation9,049
8,635
Deferred income tax benefit(2,602)(28,782)
Changes in assets and liabilities:
Accounts receivable, net(6,754)(9,137)
Other assets(4,212)1,442
Accounts payable and accrued liabilities32,895
28,502
Net cash provided by operating activities369,419
335,990
INVESTING ACTIVITIES:
Purchases of property and equipment(132,875)(166,454)
Proceeds from sale of hotel properties47,952

Decrease in restricted cash and insurance collateral244
62,945
Proceeds from insurance and related recoveries471
2,716
Net cash used in investing activities(84,208)(100,793)
FINANCING ACTIVITIES:
Principal payments on mortgage loan
(1,931,157)
Proceeds from term loan facilities, net of debt discount
1,293,500
Principal payments on term loan facilities(12,976)(366,463)
Proceeds from senior notes, net of debt discount
788,000
Proceeds from revolving credit facilities105,000
50,000
Payments on revolving credit facilities(150,000)(25,000)
Payments of deferred financing costs
(33,060)
Tax withholdings related to restricted stock unit settlements(3,548)(2,229)
Issuance of common stock
6
Repurchase of common stock(58,781)(69,600)
Repurchase of Corporation mandatorily redeemable preferred stock(14,069)
Corporation common distributions(34,978)(42,508)
ESH REIT common distributions(83,616)(120,116)
ESH REIT preferred distributions(16)(8)
Net cash used in financing activities(252,984)(458,635)
CHANGES IN CASH AND CASH EQUIVALENTS DUE TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES275
34
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS32,502
(223,404)
CASH AND CASH EQUIVALENTS - Beginning of period84,158
373,239
CASH AND CASH EQUIVALENTS - End of period$116,660
$149,835
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, excluding prepayment and other penalties$77,346
$74,134
Cash payments for income taxes, net of refunds of $403 and $1,068$37,192
$61,581
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures included in accounts payable and accrued liabilities$17,132
$20,600
Deferred financing costs included in accounts payable and accrued liabilities$
$1,146
Proceeds from sale of hotel properties included in other assets$12,675
$
Corporation common distributions included in accounts payable and accrued liabilities$721
$327
ESH REIT common distributions included in accounts payable and accrued liabilities$1,623
$1,241
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Numerator:
Net income available to Extended Stay America, Inc. common shareholders - basic$53,876
$46,556
$128,752
$124,331
Income attributable to noncontrolling interests assuming conversion(37)(4)(60)(4)
Net income available to Extended Stay America, Inc. common shareholders - diluted$53,839
$46,552
$128,692
$124,327
Denominator:
Weighted average number of Extended Stay America, Inc. common shares outstanding - basic192,357
200,556
193,399
202,156
Dilutive securities974
140
602
96
Weighted average number of Extended Stay America, Inc. common shares outstanding - diluted193,331
200,696
194,001
202,252
Net income per Extended Stay America, Inc. common share - basic$0.28
$0.23
$0.67
$0.62
Net income per Extended Stay America, Inc. common share - diluted$0.28
$0.23
$0.66
$0.61
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Total room and other hotel revenues$
$3,925
$2,940
$9,975
Total operating expenses
2,746
15,452
(1)7,925
Income (loss) before income tax expense
931
(12,199)(1)1,997
(1)Includes impairment charge recorded during the three months ended March 31, 2017 of approximately $12.4 million related to the three Canadian hotels that were sold.
September 30,
2017
December 31, 2016
Hotel properties:
Land and site improvements$1,288,376
$1,303,752
Building and improvements2,922,672
2,940,615
Furniture, fixtures and equipment650,547
612,855
Total hotel properties4,861,595
4,857,222
Corporate furniture, fixtures, equipment, software and other21,159
20,076
Undeveloped land parcel1,675
1,675
Total cost4,884,429
4,878,973
Less accumulated depreciation:
Hotel properties(1,080,539)(962,400)
Corporate furniture, fixtures, equipment, software and other(13,525)(11,269)
Total accumulated depreciation(1,094,064)(973,669)
Property and equipment - net$3,790,365
$3,905,304
September 30, 2017
Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Book Value
Definite-lived intangible assets—customer relationships20 years$26,800
$(9,355)$17,445
Indefinite-lived intangible assets—trademarks9,933

9,933
Total intangible assets36,733
(9,355)27,378
Goodwill48,910

48,910
Total intangible assets and goodwill$85,643
$(9,355)$76,288
December 31, 2016
Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Book Value
Definite-lived intangible assets—customer relationships20 years$26,800
$(8,350)$18,450
Indefinite-lived intangible assets—trademarks9,933

9,933
Total intangible assets36,733
(8,350)28,383
Goodwill53,531

53,531
Total intangible assets and goodwill$90,264
$(8,350)$81,914
Years Ending December 31,
Remainder of 2017$335
20181,340
20191,340
20201,340
20211,340
Thereafter11,750
Total$17,445
Stated
Amount(1)
Carrying AmountUnamortized Deferred Financing CostsInterest Rate
LoanSeptember 30, 2017December 31, 2016September 30, 2017December 31, 2016Stated Interest RateSeptember 30, 2017December 31, 2016Maturity Date
Term loan facilities
ESH REIT 2016 Term Facility$1,300,000
(2)$1,281,530
(3)$1,290,560
$14,026
$15,804
LIBOR(4) + 2.50%(5)
3.71%(5)3.75%8/30/2023(7)
Senior notes
ESH REIT 2025 Notes1,300,000
1,290,027
(6)1,289,041
21,406
23,523
5.25%5.25%5.25%5/1/2025
Revolving credit facilities (8)
ESH REIT 2016 Revolving Credit Facility350,000

45,000
2,157
(8)2,570
(8)LIBOR + 2.75%
N/A
3.33%8/30/2021
Corporation 2016 Revolving Credit Facility50,000


429
(8)511
(8)LIBOR + 3.00%
N/A
N/A
8/30/2021
Unsecured Intercompany Facility
Unsecured Intercompany Facility75,000
(9)



5.00%5.00%5.00%8/30/2023
Total$2,571,557
$2,624,601
$38,018
$42,408
(1)Amortization is interest only, except for the 2016 Term Facility (as defined below) which amortizes in equal quarterly installments of $3.24 million. See (7) below.
(3)The 2016 Term Facility is presented net of an unamortized debt discount of approximately $5.5 million and $6.2 million as of September 30, 2017 and December 31, 2016, respectively.
(6)The 2025 Notes (as defined below) are presented net of an unamortized debt discount of approximately $10.0 million and $11.0 million as of September 30, 2017 and December 31, 2016, respectively.
(7)In addition to scheduled amortization noted in (1) above, subject to certain exceptions, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required under the 2016 Term Facility commencing with the year ending December 31, 2017. Annual mandatory prepayments for the year ending December 31, 2017 and each year thereafter are due during the first quarter of the following year.
(8)Unamortized deferred financing costs related to the revolving credit facilities are included in other assets in the accompanying unaudited condensed consolidated balance sheets.
(9)As of September 30, 2017, the outstanding balance owed from ESH REIT to the Corporation under the Unsecured Intercompany Facility was $50.0 million. ESH REIT is able to increase its borrowings under the Unsecured Intercompany Facility to an amount of up to $300.0 million, plus additional amounts, in each case subject to certain conditions. The outstanding debt balance and interest expense owed from ESH REIT to the Corporation related to the Unsecured Intercompany Facility eliminate in consolidation.
Years Ending December 31,
Remainder of 2017$3,242
201812,968
(1)
201912,968
(1)
202012,968
(1)
202112,968
(1)
Thereafter2,531,910
(1)
Total$2,587,024
(1)Under the 2016 Term Facility, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required commencing with the year ending December 31, 2017. Annual mandatory prepayments for the year ending December 31, 2017 and each year thereafter are due during the first quarter of the following year.
Other AssetsAccumulated other comprehensive income, net of taxOther non-operating expense (income)InterestExpense
As of September 30, 2017$4,534
$4,079
(1)
As of December 31, 2016$4,990
$3,898
For the three months ended September 30, 2017$104
(2)$(66)
For the three months ended September 30, 2016$
$
For the nine months ended September 30, 2017$356
(3)$807
For the nine months ended September 30, 2016$
$
(1)Changes during the nine months ended September 30, 2017 consisted of changes in fair value of $(0.5) million (effective portion) and amortization of accumulated other comprehensive income prior to de-designation of $0.7 million.
(2)Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.1 million.
(3)Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.7 million and removal of the LIBOR floor of approximately $(0.3) million.
Unrecognized Compensation Expense Related to Outstanding RSAs/RSUs (in thousands)Remaining Weighted-Average Amortization Period (in years)
RSAs/RSUs with service vesting conditions$7,798
1.5
RSUs with performance vesting conditions916
0.3
RSUs with market vesting conditions4,372
1.1
Total unrecognized compensation expense$13,086
Performance-Based Awards
Service-Based AwardsPerformance VestingMarket Vesting
Number ofRSAs/RSUs(in thousands)Weighted-Average Grant-Date FairValueNumber ofRSUs(in thousands)Weighted-Average Grant-Date FairValueNumber ofRSUs(in thousands)Weighted-Average Grant-Date FairValue(1)
Outstanding at January 1, 2017892
$16.93
119
$14.07
972
$9.01
Granted269
$17.50
192
$17.45
104
$18.58
Settled(417)$17.75
(119)$14.07

$
Forfeited(40)$17.02
(12)$17.45
(37)$16.19
Outstanding at September 30, 2017704
$16.66
180
$17.45
1,039
$9.71
Vested at September 30, 201718
$23.03

$

$
Nonvested at September 30, 2017686
$16.50
180
$17.45
1,039
$9.71
(1)An independent third-party valuation was performed contemporaneously with the issuance of grants.
September 30,
2017
December 31,
2016
ASSETS
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,092,693 and $959,449$3,808,125
$3,914,569
CASH AND CASH EQUIVALENTS65,013
53,506
RESTRICTED CASH
344
RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 9)21,993
2,609
DEFERRED RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 9)28,192
40,259
GOODWILL47,627
52,245
DEFERRED TAX ASSETS244

OTHER ASSETS32,435
13,973
TOTAL ASSETS$4,003,629
$4,077,505
LIABILITIES AND EQUITY

LIABILITIES:

Term loan facilities payable - Net of unamortized deferred financing costs and debt discount
of $19,520 and $21,994
$1,267,504
$1,274,756
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $31,379 and $34,482
1,268,621
1,265,518
Revolving credit facility
45,000
Loan payable to Extended Stay America, Inc. (Notes 6 and 9)50,000
50,000
Unearned rental revenues from Extended Stay America, Inc. (Note 9)192,124
39,898
Due to Extended Stay America, Inc. (Note 9)10,354
11,608
Accounts payable and accrued liabilities88,473
69,520
Deferred tax liabilities
3,286
Total liabilities2,877,076
2,759,586
COMMITMENTS AND CONTINGENCIES (Note 10)



EQUITY:



Common stock - Class A: $0.01 par value, 4,300,000,000 shares authorized, 250,493,583 shares issued and outstanding; Class B: $0.01 par value, 7,800,000,000 shares authorized, 192,293,933 and 195,406,944 shares issued and outstanding4,428
4,462
Additional paid in capital1,087,276
1,144,664
Preferred stock - no par value, $1,000 liquidation value, 125 shares authorized, issued and outstanding73
73
Retained earnings29,548
176,532
Accumulated other comprehensive income (loss)5,228
(7,812)
Total equity1,126,553
1,317,919
TOTAL LIABILITIES AND EQUITY$4,003,629
$4,077,505
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
REVENUES- Rental revenues from Extended Stay America, Inc. (Note 9)$143,407
$153,139
$375,290
$385,873
OPERATING EXPENSES:
Hotel operating expenses22,578
22,155
69,589
68,757
General and administrative expenses (Note 9)3,722
3,476
12,516
10,677
Depreciation56,523
54,748
169,916
160,546
Impairment of long-lived assets

15,046

Total operating expenses82,823
80,379
267,067
239,980
LOSS ON SALE OF HOTEL PROPERTIES (Note 4)

(3,274)
OTHER INCOME5

640

INCOME FROM OPERATIONS60,589
72,760
105,589
145,893
OTHER NON-OPERATING INCOME(211)(84)(271)(858)
INTEREST EXPENSE, NET32,116
48,521
97,779
129,886
INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)28,684
24,323
8,081
16,865
INCOME TAX EXPENSE (BENEFIT)198
671
435
(3,128)
NET INCOME$28,486
$23,652
$7,646
$19,993
NET INCOME PER ESH HOSPITALITY, INC. COMMON SHARE:
Class A - basic$0.06
$0.05
$0.02
$0.04
Class A - diluted$0.06
$0.05
$0.02
$0.04
Class B - basic$0.06
$0.05
$0.02
$0.04
Class B - diluted$0.06
$0.05
$0.02
$0.04
WEIGHTED-AVERAGE ESH HOSPITALITY, INC. COMMON SHARES OUTSTANDING:
Class A - basic250,494
250,494
250,494
250,494
Class A - diluted250,494
250,494
250,494
250,494
Class B - basic192,357
200,556
193,399
202,156
Class B - diluted193,331
200,696
193,399
202,252
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
NET INCOME$28,486
$23,652
$7,646
$19,993
OTHER COMPREHENSIVE INCOME, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
FOREIGN CURRENCY TRANSLATION (LOSS) GAIN, NET OF TAX OF $0
(899)531
2,133
RECLASSIFICATION ADJUSTMENT - SALE OF CANADIAN HOTEL PROPERTIES, NET OF TAX OF $0, $0, $(264) AND $0

12,256

TOTAL FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
(899)12,787
2,133
DERIVATIVE ADJUSTMENTS:
INTEREST RATE CASH FLOW HEDGE (LOSS) GAIN, NET OF TAX OF $09
(569)(453)(569)
RECLASSIFICATION ADJUSTMENT - AMOUNTS RECLASSIFIED TO NET INCOME, NET OF TAX OF $0103

706

TOTAL DERIVATIVE ADJUSTMENTS112
(569)253
(569)
COMPREHENSIVE INCOME$28,598
$22,184
$20,686
$21,557
Common StockPreferred StockAdditionalPaid in CapitalRetainedEarningsAccumulatedOtherComprehensiveLossTotalEquity
Class ASharesClass BSharesAmountSharesAmount
BALANCE - January 1, 2016250,494
204,594
$4,554
125
$73
$1,168,903
$186,306
$(13,370)$1,346,466
Net income





19,993

19,993
Foreign currency translation, net of tax






2,133
2,133
Interest rate cash flow hedge loss, net of tax






(569)(569)
Issuance of common stock
224
2


1,531


1,533
Repurchase of Class B common stock
(4,622)(46)


(26,906)
(26,952)
Common distributions - $0.40 per Class A and Class B common share




(26,933)(154,888)
(181,821)
Preferred distributions





(12)
(12)
Equity-based compensation
4



242


242
BALANCE - September 30, 2016250,494
200,200
$4,510
125
$73
$1,143,743
$24,493
$(11,806)$1,161,013
Common StockPreferred StockAdditionalPaid in CapitalRetainedEarningsAccumulatedOtherComprehensive(Loss) IncomeTotalEquity
Class ASharesClass BSharesAmountSharesAmount
BALANCE - January 1, 2017250,494
195,407
$4,462
125
$73
$1,144,664
$176,532
$(7,812)$1,317,919
Net income





7,646

7,646
Foreign currency translation, net of tax






12,787
12,787
Interest rate cash flow hedge gain, net of tax






253
253
Repurchase of Class B common stock
(3,430)(37)


(21,454)
(21,491)
Common distributions - $0.43 per Class A and Class B common share




(58,523)(133,164)
(191,687)
Preferred distributions





(12)
(12)
Equity-based compensation
317
3


1,135


1,138
BALANCE - September 30, 2017250,494
192,294
$4,428
125
$73
$1,087,276
$29,548
$5,228
$1,126,553
Nine Months Ended
September 30,
20172016
OPERATING ACTIVITIES:
Net income$7,646
$19,993
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation169,916
160,546
Foreign currency transaction gain(627)(858)
Loss on interest rate swap709

Amortization of deferred financing costs and debt discount5,990
28,281
Amortization of above-market ground leases(102)(102)
Loss on disposal of property and equipment8,065
7,254
Loss on sale of hotel properties3,274

Impairment of long-lived assets15,046

Equity-based compensation266
242
Deferred income tax benefit(3,700)(1,704)
Changes in assets and liabilities:
Deferred rents receivable from Extended Stay America, Inc.11,393
966
Due to Extended Stay America, Inc., net(1,109)(2,853)
Other assets(5,625)1,011
Unearned rental revenues/rents receivable from Extended Stay America, Inc., net132,842
133,915
Accounts payable and accrued liabilities24,495
28,562
Net cash provided by operating activities368,479
375,253
INVESTING ACTIVITIES:
Purchases of property and equipment(130,899)(164,188)
Proceeds from sale of hotel properties42,005

Decrease in restricted cash344
60,601
Proceeds from insurance and related recoveries471
2,716
Net cash used in investing activities(88,079)(100,871)
FINANCING ACTIVITIES:
Principal payments on mortgage loan
(1,931,157)
Proceeds from term loan facilities, net of debt discount
1,293,500
Principal payments on term loan facilities(12,976)(366,463)
Proceeds from senior notes, net of debt discount
788,000
Proceeds from revolving credit facility105,000
50,000
Payments on revolving credit facility(150,000)(25,000)
Proceeds from loan payable to Extended Stay America, Inc.
75,000
Payments of deferred financing costs
(32,814)
Net proceeds to Extended Stay America, Inc.
(18,548)
Repurchase of common stock(21,488)(26,952)
Issuance of Class B common stock1,915
1,134
Common distributions(191,328)(267,907)
Preferred distributions(16)(8)
Net cash used in financing activities(268,893)(461,215)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS11,507
(186,833)
CASH AND CASH EQUIVALENTS - Beginning of period53,506
223,256
CASH AND CASH EQUIVALENTS - End of period$65,013
$36,423
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, excluding prepayment and other penalties$78,234
$73,023
Cash payments for income taxes, net of refunds of $3 and $388$2,388
$1,377
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures included in due to/from Extended Stay America, Inc. and accounts payable and accrued liabilities$16,836
$20,071
Deferred financing costs included in accounts payable and accrued liabilities$
$1,146
Proceeds from sale of hotel properties included in other assets$12,675
$
Common distributions included in accounts payable and accrued liabilities$1,623
$1,241
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Numerator:
Net income$28,486
$23,652
$7,646
$19,993
Less preferred dividends(4)(4)(12)(12)
Net income available to ESH Hospitality, Inc. common shareholders$28,482
$23,648
$7,634
$19,981
Class A:
Net income available to ESH Hospitality, Inc. common shareholders - basic$16,112
$13,143
$4,360
$11,121
Amounts attributable to ESH Hospitality, Inc. Class B shareholders assuming conversion(37)(4)
(4)
Net income available to ESH Hospitality, Inc. common shareholders - diluted$16,075
$13,139
$4,360
$11,117
Class B:
Net income available to ESH Hospitality, Inc. common shareholders - basic$12,370
$10,505
$3,274
$8,861
Amounts attributable to ESH Hospitality, Inc. Class B shareholders assuming conversion37
4

4
Net income available to ESH Hospitality, Inc. common shareholders - diluted$12,407
$10,509
$3,274
$8,865
Denominator:
Class A:
Weighted average number of ESH Hospitality, Inc. common shares outstanding - basic and diluted250,494
250,494
250,494
250,494
Class B:
Weighted average number of ESH Hospitality, Inc. common shares outstanding - basic192,357
200,556
193,399
202,156
Dilutive securities974
140

96
Weighted average number of ESH Hospitality, Inc. common shares outstanding - diluted193,331
200,696
193,399
202,252
Net income per ESH Hospitality, Inc. common share - Class A - basic$0.06
$0.05
$0.02
$0.04
Net income per ESH Hospitality, Inc. common share - Class A - diluted$0.06
$0.05
$0.02
$0.04
Net income per ESH Hospitality, Inc. common share - Class B - basic$0.06
$0.05
$0.02
$0.04
Net income per ESH Hospitality, Inc. common share - Class B - diluted$0.06
$0.05
$0.02
$0.04
Anti-dilutive securities excluded from net income per common share - Class B - diluted

602

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Rental revenues from Extended Stay America, Inc.$
$1,527
$2,040
$4,527
Total operating expenses
603
15,527
(1)1,864
Income (loss) before income tax expense
676
(13,173)(1)2,610
(1)Includes impairment charge recorded during the three months ended March 31, 2017 of approximately $15.0 million related to the three Canadian hotels.
September 30,
2017
December 31,
2016
Hotel properties:
Land and site improvements$1,290,312
$1,304,503
Building and improvements2,957,829
2,960,158
Furniture, fixtures and equipment651,002
607,682
Total hotel properties4,899,143
4,872,343
Undeveloped land parcel1,675
1,675
Total cost4,900,818
4,874,018
Less accumulated depreciation(1,092,693)(959,449)
Property and equipment - net$3,808,125
$3,914,569
StatedAmount(1)Carrying AmountUnamortized Deferred Financing CostsInterest Rate
LoanSeptember 30, 2017December 31, 2016September 30, 2017December 31, 2016Stated Interest RateSeptember 30, 2017December 31, 2016MaturityDate
Term loan facility
2016 Term Facility$1,300,000
(2)$1,281,530
(3)$1,290,560
$14,026
$15,804
LIBOR(4) + 2.50%
(5)3.71%(5)3.75%08/30/2023(7)
Senior notes
2025 Notes1,300,000
1,290,027
(6)1,289,041
21,406
23,523
5.25%5.25%5.25%05/01/2025
Revolving credit facility
2016 Revolving Credit Facility350,000

45,000
2,157
(8)2,570
(8)LIBOR + 2.75%
N/A
3.33%08/30/2021
Unsecured Intercompany Facility
Unsecured Intercompany Facility75,000
(9)50,000
50,000


5.00%5.00%5.00%08/30/2023
Total$2,621,557
$2,674,601
$37,589
$41,897
(3)The 2016 Term Facility is presented net of an unamortized debt discount of approximately $5.5 million and $6.2 million as of September 30, 2017 and December 31, 2016, respectively.
(6)The 2025 Notes (as defined below) are presented net of an unamortized debt discount of approximately $10.0 million and $11.0 million as of September 30, 2017 and December 31, 2016, respectively.
(7)In addition to scheduled amortization noted in (1) above, subject to certain exceptions, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required under the 2016 Term Facility commencing with the year ending December 31, 2017. Annual mandatory prepayments for the year ending December 31, 2017 and each year thereafter are due during the first quarter of the following year.
(8)Unamortized deferred financing costs related to the revolving credit facility are included in other assets in the accompanying unaudited condensed consolidated balance sheets.
(9)As of September 30, 2017, the outstanding balance owed from ESH REIT to the Corporation under the Unsecured Intercompany Facility was $50.0 million. ESH REIT is able to increase its borrowings under the Unsecured Intercompany Facility to an amount of up to $300.0 million, plus additional amounts, in each case subject to certain conditions.
Years Ending December 31,
Remainder of 2017$3,242
201812,968
(1)
201912,968
(1)
202012,968
(1)
202112,968
(1)
Thereafter2,581,910
(1)
Total$2,637,024
(1)Under the 2016 Term Facility, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required commencing with the year ending December 31, 2017. Annual mandatory prepayments for the year ending December 31, 2017 and each year thereafter are due during the first quarter of the following year.
Other AssetsAccumulated other comprehensive income, net of taxOther non-operating expense (income)Interest Expense
As of September 30, 2017$4,534
$5,228
(1)
As of December 31, 2016$4,990
$4,975
For the three months ended September 30, 2017$104
(2)$(66)
For the three months ended September 30, 2016$
$
For the nine months ended September 30, 2017$356
(3)$807
For the nine months ended September 30, 2016$
$
(3)Consists of amortization of accumulated other comprehensive income prior to de-designation of $0.7 million and removal of the LIBOR floor of approximately $(0.3) million.
September 30,
2017
December 31,
2016
Leases:
Rents receivable(1)$21,993
$2,609
Deferred rents receivable(2)$28,192
$40,259
Unearned rental revenues(1)$(192,124)$(39,898)
Debt:
Loan payable (Unsecured Intercompany Facility)(3)$(50,000)$(50,000)
Working capital and other:
Ordinary working capital(4)$(10,367)$(12,566)
Equity awards receivable(5)13
958
Total working capital and other(6)$(10,354)$(11,608)
(1)Fixed minimum rents are due one-month in advance. Percentage rents are due one-month in arrears. Rents receivable relate to September 2017 and December 2016 percentage rent, respectively. As of September 30, 2017, unearned rental revenues consisted of percentage rents of approximately $152.7 million and fixed minimum rents of approximately $39.4 million. As of December 31, 2016, unearned rental revenues consisted of fixed minimum rents of approximately $39.9 million.
(3)The Unsecured Intercompany Facility bears interest at 5.0% per annum. ESH REIT is able to increase its borrowings under the Unsecured Intercompany Facility to an amount up to $300 million, plus additional amounts, in each case subject to certain conditions (see Note 6).
Number ofRSAs/RSUs(in thousands)Weighted-AverageGrant-DateFair Value
Outstanding at January 1, 201728
$14.57
Granted26
$17.56
Settled(15)$13.66
Forfeited
$
Outstanding at September 30, 201739
$16.91
Vested at September 30, 2017
$
Nonvested at September 30, 201739
$16.91
ADR or average daily rate means hotel room revenues divided by total number of rooms sold in a given period.
Corporation means Extended Stay America, Inc., a Delaware corporation, and its subsidiaries (excluding ESH REIT and its subsidiaries), which include the Operating Lessees (as defined below), ESH Strategies (as defined below) and ESA Management (as defined below). The Corporation controls ESH REIT through its ownership of ESH REIT’s Class A common stock, which currently represents approximately 57% of the outstanding common stock of ESH REIT.
Extended stay market means the market of hotels with a fully equipped kitchenette in each guest room, which accept reservations and do not require a lease, as defined by The Highland Group.
Former Sponsors means, collectively, Centerbridge Partners, L.P., Paulson & Co. Inc. and The Blackstone Group L.P. and their funds or affiliates. After giving effect to the 2017 Secondary Offerings, funds or affiliates of Centerbridge Partners, L.P. and The Blackstone Group L.P. no longer own any Paired Shares and funds or affiliates of Paulson & Co. Inc. (individually referred to as a Former Sponsor) own approximately 1.8 million Paired Shares, which represents approximately 0.9% of the Company's issued and outstanding Paired Shares as of September 30, 2017.
Hotel renovation means, when used in connection with our Company-wide initiative to renovate our hotel properties that were completed during the second quarter of 2017, upgrades that typically include remodeling of common areas, new paint, carpet, signage, tile or vinyl flooring and counters in bathrooms and kitchens, as well as the refurbishment of furniture, replacement of aged mattresses and installation of new flat screen televisions, artwork, lighting and bedspreads.
Occupancy or occupancy rate means the total number of rooms sold in a given period divided by the total number of rooms available during that period.
RevPAR or Revenue Per Available Room means the product of average daily room rate charged and the average daily occupancy achieved for a hotel or group of hotels in a given period. RevPAR does not include ancillary revenues, such as food and beverage revenues, or parking, pet, telephone or other guest service revenues.
When we refer to our ownership of hotel properties, we are referring to the hotel properties owned by subsidiaries of ESH REIT.
When we refer to the management and operation of our hotels, we are referring to the management of hotels by ESA Management and the operation of hotels by the Operating Lessees.
When we refer to our brands, we are referring to intellectual property related to our business owned by ESH Strategies.
Divesting certain of our hotels to franchisees which we expect will remain under the Extended Stay America brand and for which we may perform management and/or other services;
Converting existing hotels to the Extended Stay America brand, either as franchises or on our own balance sheet;
Franchising newly constructed Extended Stay America branded hotel properties which we expect will be owned by franchisees and for which we may perform management and/or other services; and
Percentage of2017 Year toDateRevenues
• Room revenues. Room revenues are driven primarily by ADR and occupancy. Pricing policy and customer mix are significant drivers of ADR. Due to our relatively high occupancy levels, our primary focus is on increasing RevPAR by increasing ADR. For the nine months ended September 30, 2017, we experienced RevPAR growth of approximately 1.3% compared to the nine months ended September 30, 2016, mainly due to an increase in shorter-stay business and leisure guests, the collective impact of our recently completed hotel renovation program and focus on service excellence. 98.3%
• Other hotel revenues. Other hotel revenues include ancillary revenues such as laundry revenues, vending commissions, additional housekeeping fees, purchased WiFi upgrades, parking revenues and pet charges. Occupancy and customer mix, as well as the number and percentage of guests that have longer-term stays, have been historical drivers of other hotel revenues. We experienced an increase in other hotel revenues of approximately $1.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to increases in guest purchased Wifi upgrades and smoking, parking, and pet fee revenues. 1.7%
Percentage of2017 Year toDateOperatingExpenses
• Hotel operating expenses. Hotel operating expenses have both fixed and variable components. Operating expenses that are relatively fixed include personnel expense, real estate tax expense and property insurance premium expense. Occupancy is a key driver of expenses that have a high degree of variability such as housekeeping services and amenity costs. Other variable expenses include marketing costs, reservation costs, property insurance claims expense and repairs and maintenance expense. We experienced a decrease in hotel operating expenses of approximately $1.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, mainly due to decreases in reservation costs, utilities expense, maintenance expense and amenity costs, partially offset by an increase in personnel costs and credit card disputes.62.2%
• General and administrative expenses. General and administrative expenses include expenses associated with corporate overhead. These costs consist primarily of compensation expense of our corporate staff, which includes equity-based compensation, and professional fees, including audit, tax, legal and consulting fees.10.6%
• Depreciation and amortization. Depreciation and amortization is a non-cash charge that relates primarily to the acquisition and related usage of hotels and other property and equipment, including capital expenditures incurred with respect to our recently completed hotel renovations.24.3%
• Impairment of long-lived assets. Impairment of long-lived assets is a non-cash charge recognized when events and circumstances indicate that the carrying value of an individual asset, or group of assets, may not be recoverable.2.9%
Percentage of2017 Year toDateOperatingExpenses
• Hotel operating expenses. ESH REIT’s hotel operating expenses include expenses directly related to ownership of the hotels, such as real estate tax expense, loss on disposal of assets and property insurance premium and claims expense.26.1%
• General and administrative expenses. General and administrative expenses include overhead expenses incurred directly by ESH REIT and administrative costs reimbursed to ESA Management.4.7%
• Depreciation. Depreciation is a non-cash charge that relates primarily to the acquisition and related usage of hotels and other property and equipment, including capital expenditures incurred with respect to ESH REIT's recently completed hotel renovations.63.6%
• Impairment of long-lived assets. Impairment of long-lived assets is a non-cash charge recognized when events and circumstances indicate that the carrying value of an individual asset or group of assets may not be recoverable.5.6%
Three Months Ended
September 30,


20172016Change ($)Change (%)
Revenues:
Room revenues$345,089
$349,076
$(3,987)(1.1)%
Other hotel revenues5,777
5,445
332
6.1 %
Total revenues350,866
354,521
(3,655)(1.0)%
Operating expenses:
Hotel operating expenses152,155
149,860
2,295
1.5 %
General and administrative expenses23,823
24,612
(789)(3.2)%
Depreciation and amortization57,314
55,955
1,359
2.4 %
Impairment of long-lived assets
2,756
(2,756)n/a
Total operating expenses233,292
233,183
109
%
Other income344
2
342
17,100.0 %
Income from operations117,918
121,340
(3,422)(2.8)%
Other non-operating income(278)(305)27
(8.9)%
Interest expense, net31,651
48,713
(17,062)(35.0)%
Income before income tax expense86,545
72,932
13,613
18.7 %
Income tax expense20,295
15,867
4,428
27.9 %
Net income66,250
57,065
9,185
16.1 %
Net income attributable to noncontrolling interests (1)(12,374)(10,509)(1,865)17.7 %
Net income attributable to Extended Stay America, Inc. common shareholders$53,876
$46,556
$7,320
15.7 %
Three Months Ended September 30,
20172016Change
Number of hotels (as of September 30)(1)625629(4)
Number of rooms (as of September 30)(1)68,78069,383(603)
Occupancy79.0%79.4%(40) bps
ADR$69.01.840.2%
RevPAR$54.55$54.65(0.2)%
Hotel Inventory (as of September 30)(2):
Renovated Extended Stay America625547(3)78
Unrenovated Extended Stay America and other82(82)
Total number of hotels625629(4)
Renovation Displacement Data (in thousands, except percentages)(2):
Total available room nights6,3266,383(57)
Room nights displaced from renovation464(60)
% of available room nights displaced0.1%1.0%(90) bps
Nine Months Ended September 30,
20172016Change ($)Change (%)
Revenues:
Room revenues$963,505
$960,046
$3,459
0.4 %
Other hotel revenues16,715
14,822
1,893
12.8 %
Total revenues980,220
974,868
5,352
0.5 %
Operating expenses:
Hotel operating expenses442,726
444,498
(1,772)(0.4)%
General and administrative expenses75,560
73,552
2,008
2.7 %
Depreciation and amortization172,789
164,274
8,515
5.2 %
Impairment of long-lived assets20,357
2,756
17,601
638.6 %
Total operating expenses711,432
685,080
26,352
3.8 %
Loss on sale of hotel properties(1,897)
(1,897)n/a
Other income2,400
20
2,380
11,900.0 %
Income from operations269,291
289,808
(20,517)(7.1)%
Other non-operating income(426)(1,069)643
(60.1)%
Interest expense, net96,958
131,462
(34,504)(26.2)%
Income before income tax expense172,759
159,415
13,344
8.4 %
Income tax expense40,721
26,211
14,510
55.4 %
Net income132,038
133,204
(1,166)(0.9)%
Net loss attributable to noncontrolling interests(1)(3,286)(8,873)5,587
(63.0)%
Net income attributable to Extended Stay America, Inc. common shareholders$128,752
$124,331
$4,421
3.6 %
Nine Months Ended September 30,
20172016Change
Number of hotels (as of September 30)(1)625629(4)
Number of rooms (as of September 30)(1)68,78069,383(603)
Occupancy76.1%75.2%90 bps
ADR$67.15$67.090.1%
RevPAR$51.13$50.471.3%
Hotel Inventory (as of September 30)(2):
Renovated Extended Stay America 625547(3)78
Unrenovated Extended Stay America and other82(82)
Total number of hotels625629(4)
Renovation Displacement Data (in thousands, except percentages) (2):
Total available room nights18,84519,015(170)
Room nights displaced from renovation101243(142)
% of available room nights displaced0.5%1.3%(80) bps
Three Months Ended September 30,
20172016Change ($)Change (%)
Revenues- Rental revenues from Extended Stay America, Inc.$143,407
$153,139
$(9,732)(6.4)%
Operating expenses:
Hotel operating expenses22,578
22,155
423
1.9%
General and administrative expenses3,722
3,476
246
7.1%
Depreciation56,523
54,748
1,775
3.2%
Total operating expenses82,823
80,379
2,444
3.0%
Other income5

5
n/a
Income from operations60,589
72,760
(12,171)(16.7)%
Other non-operating income(211)(84)(127)151.2%
Interest expense, net32,116
48,521
(16,405)(33.8)%
Income before income tax expense28,684
24,323
4,361
17.9%
Income tax expense198
671
(473)(70.5)%
Net income$28,486
$23,652
$4,834
20.4%
Nine Months Ended September 30,
20172016Change ($)Change (%)
Revenues- Rental revenues from Extended Stay America, Inc.$375,290
$385,873
$(10,583)(2.7)%
Operating expenses:
Hotel operating expenses69,589
68,757
832
1.2%
General and administrative expenses12,516
10,677
1,839
17.2%
Depreciation169,916
160,546
9,370
5.8%
Impairment of long-lived assets15,046

15,046
n/a
Total operating expenses267,067
239,980
27,087
11.3%
Loss on sale of hotel properties(3,274)
(3,274)n/a
Other income640

640
n/a
Income from operations105,589
145,893
(40,304)(27.6)%
Other non-operating income(271)(858)587
(68.4)%
Interest expense, net97,779
129,886
(32,107)(24.7)%
Loss before income tax expense (benefit)8,081
16,865
(8,784)(52.1)%
Income tax expense (benefit)435
(3,128)3,563
(113.9)%
Net loss$7,646
$19,993
$(12,347)(61.8)%
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Room revenues$345,089
$349,076
$963,505
$960,046
Other hotel revenues5,777
5,445
16,715
14,822
Total hotel revenues350,866
354,521
980,220
974,868
Hotel operating expenses (1)150,108
147,605
434,661
437,242
Hotel Operating Profit$200,758
$206,916
$545,559
$537,626
Hotel Operating Margin57.2%58.4%55.7%55.1%
Equity-based compensation—We exclude non-cash charges related to the amortization of equity-based compensation awards to employees and directors.
Other non-operating (income) expense—We exclude the effect of other non-operating expense or income, as we believe non-cash gains or losses on interest rate swaps or other derivatives and foreign currency transaction gains or losses are not reflective of ongoing or future operating performance.
Impairment of long-lived assets— We exclude the effect of impairment losses recorded on property and equipment and intangible assets, as we believe they are not reflective of ongoing or future operating performance.
(Gain) loss on sale of hotel properties— We exclude the gain or loss on sale of hotel properties, as we believe it is not reflective of ongoing or future operating performance.
Other expenses—We exclude the effect of expenses that we do not consider reflective of ongoing or future operating performance, including the following: the loss on disposal of assets, costs incurred in connection with secondary offerings and transaction costs associated with the sale of hotel properties.
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Net income$66,250
$57,065
$132,038
$133,204
Interest expense, net31,651
48,713
96,958
131,462
Income tax expense20,295
15,867
40,721
26,211
Depreciation and amortization57,314
55,955
172,789
164,274
EBITDA175,510
177,600
442,506
455,151
Equity-based compensation2,720
3,016
9,049
8,635
Other non-operating income(278)(1)(305)(2)(426)(3)(1,069)(4)
Impairment of long-lived assets
2,756
20,357
2,756
Loss on sale of hotel properties

1,897

Other expenses2,314
(5)2,666
(6)9,333
(7)7,718
(8)
Adjusted EBITDA$180,266
$185,733
$482,716
$473,191
(5)Includes loss on disposal of assets of approximately $2.1 million, transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of the three Canadian hotel properties in May 2017 and additional costs incurred in connection with the second quarter 2017 secondary offerings of approximately $0.1 million.
(7)Includes loss on disposal of assets of approximately $8.1 million, costs incurred in connection with the second quarter 2017 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of the three Canadian hotel properties in May 2017.
(8)Includes loss on disposal of assets of approximately $7.2 million, costs incurred in connection with the October 2016 secondary offering of approximately $0.4 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of the 53 hotel properties in December 2015.
Debt modification and extinguishment costs—We exclude charges related to the write-off of unamortized deferred financing costs, prepayment penalties and other costs associated with modification and/or extinguishment of debt as we believe they are not reflective of our ongoing or future operating performance.
(Gain) loss on derivatives—We exclude non-cash gains or losses on interest rate swaps or other derivatives as we believe they are not reflective of our ongoing or future operating performance.
Three Months Ended September 30,Nine Months Ended September 30,
2017201620172016
Net income per Extended Stay America, Inc. common share - diluted$0.28
$0.23
$0.66
$0.61
Net income attributable to Extended Stay America, Inc. common shareholders$53,876
$46,556
$128,752
$124,331
Noncontrolling interests attributable to Class B common shares of ESH REIT12,370
10,505
3,274
8,861
Real estate depreciation and amortization56,145
54,894
169,327
161,012
Impairment of long-lived assets
2,756
20,357
2,756
Loss on sale of hotel properties

1,897

Tax effect of adjustments to net income attributable to Extended Stay America, Inc. common shareholders(13,138)(14,355)(44,835)(38,063)
FFO109,253
100,356
278,772
258,897
Debt modification and extinguishment costs
14,058
1,168
26,161
Loss on interest rate swap 103

356

Tax effect of adjustments to FFO(24)(3,500)(354)(6,272)
Adjusted FFO$109,332
$110,914
$279,942
$278,786
Adjusted FFO per Paired Share - diluted$0.57
$0.55
$1.44
$1.38
Weighted Average Paired Shares outstanding - diluted193,331
200,696
194,001
202,252

Three Months Ended September 30,Nine Months Ended September 30,

2017
2016
20172016
Net income per Extended Stay America, Inc. common share - diluted$0.28
$0.23
$0.66
$0.61
Net income attributable to Extended Stay America, Inc. common shareholders$53,876
$46,556
$128,752
$124,331
Noncontrolling interests attributable to Class B common shares of ESH REIT12,370

10,505

3,274
8,861
Paired Share Income66,246

57,061

132,026
133,192
Debt modification and extinguishment costs

14,058

1,168
26,161
Other non-operating income(278)(1)(305)(2)(426)(3)(1,069)(4)
Impairment of long-lived assets

2,756

20,357
2,756
Loss on sale of hotel properties



1,897

Other expenses2,314
(5)2,666
(6)9,333
(7)7,718
(8)
Tax effect of adjustments to Paired Share Income(477)
(4,775)
(7,570)(8,505)
Adjusted Paired Share Income$67,805

$71,461

$156,785
$160,253
Adjusted Paired Share Income per Paired Share – diluted$0.35

$0.36

$0.81
$0.79
Weighted average Paired Shares outstanding – diluted193,331

200,696

194,001
202,252
(5)Includes loss on disposal of assets of approximately $2.1 million, transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of the three Canadian hotel properties in May 2017 and costs incurred in connection with the second quarter 2017 secondary offerings of approximately $0.1 million.
(7)Includes loss on disposal of assets of approximately $8.1 million, and costs incurred in connection with the second quarter 2017 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of the three Canadian hotel properties in May 2017.
(8)Includes loss on disposal of assets of approximately $7.2 million, costs incurred in connection with the October 2016 secondary offering of approximately $0.4 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of 53 hotel properties in December 2015.
Declaration DateRecord DateDate Paid/PayableESH REIT DistributionCorporation DistributionTotal Distribution
11/7/201711/21/201712/5/2017$0.10
$0.11
$0.21
8/1/20178/15/20178/29/2017$0.14
$0.07
$0.21
4/27/20175/11/20175/25/2017$0.14
$0.07
$0.21
2/28/20173/14/20173/28/2017$0.15
$0.04
$0.19
90% of the excess of its net income, if any, from foreclosure property over the tax imposed on such income by the Code; less
Nine Months Ended September 30,
20172016Change ($)
Cash provided by (used in):




Operating activities$369,419
$335,990

$33,429
Investing activities(84,208)(100,793)
16,585
Financing activities(252,984)(458,635)
205,651
Effects of changes in exchange rate on cash and cash equivalents275
34

241
Net increase (decrease) in cash and cash equivalents$32,502
$(223,404)
$255,906
Nine Months Ended September 30,

20172016Change ($)
Cash provided by (used in):



Operating activities$368,479
$375,253

$(6,774)
Investing activities(88,079)(100,871)
12,792
Financing activities(268,893)(461,215)
192,322
Net increase (decrease) in cash and cash equivalents$11,507
$(186,833)
$198,340
PeriodTotal number of Paired Shares purchased (1)Average price paid per Paired Share (2)Total number of Paired Shares purchased as part of publicly announced program (1)Maximum dollar value that may yet be purchased under the program(3)
July 1 - July 31, 2017169,926

$19.49

169,926

$102,841,881
August 1 - August 31, 201776,000
$19.57

76,000
$101,354,561
September 1 - September 30, 2017

$



$101,354,561
Total245,926
$19.51
245,926
$101,354,561
(3)In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program for up to $100 million of Paired Shares. In February 2016, the Boards of Directors of the Corporation and ESH REIT authorized an increase of the combined Paired Share repurchase program from up to $100 million to up to $200 million of Paired Shares. In December 2016, the Boards of Directors of the Corporation and ESH REIT authorized an increase of the combined Paired Share repurchase program from up to $200 million to up to $300 million of Paired Shares and extended the maturity date of the program through December 31, 2017, each effective January 1, 2017. Repurchases may be made at management’s discretion from time to time in the open market, in privately negotiated transactions or by other means (including through Rule 10b5-1 trading plans).

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