UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172020
Or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36190001-36190Commission File Number:001-36191


Extended Stay America, Inc.ESH Hospitality, Inc.
(Exact name of registrant as specified in its charter)(Exact name of registrant as specified in its charter)


DelawareDelaware
(State or other jurisdiction of
incorporation or organization)
(State or other jurisdiction of
incorporation or organization)
46-314031227-3559821
(I.R.S. Employer
Identification No.)
(I.R.S. Employer
Identification No.)
11525 N. Community House Road, Suite 10011525 N. Community House Road, Suite 100
CharlotteCharlotte
North CarolinaNorth Carolina
2827728277
(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)

DelawareDelaware
(State or other jurisdiction of
incorporation or organization)
(State or other jurisdiction of
incorporation or organization)
46-314031227-3559821
(I.R.S. Employer
Identification No.)
(I.R.S. Employer
Identification No.)
11525 N. Community House Road, Suite 100
Charlotte, North Carolina 28277
11525 N. Community House Road, Suite 100
Charlotte, 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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)
Name of each exchange
on which registered
Common Stock, par value $0.01 per share, of Extended Stay America, Inc.STAYNasdaq Global Select Market
and Class B Common Stock, par value $0.01 per share, of ESH Hospitality, Inc., which are attached and trade together as Paired Shares





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Extended Stay America, Inc.
Yesx
☒No¨☐
ESH Hospitality, Inc.
Yesx
☒No¨☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Extended Stay America, Inc.
Yesx
☒No¨☐
ESH Hospitality, Inc.
Yesx
☒No¨☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
 
Extended Stay America, Inc.Large accelerated filerAccelerated Filerx☒Accelerated filer¨☐
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
☐
Smaller reporting 
company
¨☐
Emerging growth company
¨
☐		¨
ESH Hospitality, Inc.Large accelerated filerAccelerated Filerx☒Accelerated filer¨☐
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
☐
Smaller reporting 
company
¨☐
Emerging growth company
¨
☐		¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Extended Stay America, Inc.
Yes    ¨
☐No  x☒
ESH Hospitality, Inc.
Yes  ¨
☐Nox☒
192,293,933177,491,422 shares of common stock, par value $0.01 per share, of Extended Stay America, Inc., which are attached to and traded together with 192,293,933177,491,422 shares of Class B common stock, par value $0.01 per share, of ESH Hospitality, Inc., and 250,493,583 shares of Class A common stock, par value $0.01 per share, of ESH Hospitality, Inc., were all outstanding as of November 3, 2017.
August 5, 2020.





EXTENDED STAY AMERICA, INC.
ESH HOSPITALITY, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
 
Page No.
1
2
3
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3
Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172020 and December 31, 20162019
3
Condensed Consolidated Statements of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20172020 and 20162019
4
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and 2019
5
Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2020 and 2019
6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
8
Notes to Condensed Consolidated Financial Statements
9
ESH HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
28
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
28
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019
29
Condensed Consolidated Statements of Comprehensive Income for the Three and NineSix Months Ended SeptemberJune 30, 20172020 and 20162019
530
Condensed Consolidated Statements of Changes in Equity for the NineThree and Six Months Ended SeptemberJune 30, 20172020 and 20162019
631
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20172020 and 20162019
733
Notes to Condensed Consolidated Financial Statements
834
25
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016
25
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016
26
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016
27
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016
28
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016
29
Notes to Condensed Consolidated Financial Statements
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
4547
7072
7073
7274
7275
7277
7277
7277
7277
7378
79




ABOUT THIS COMBINED QUARTERLY REPORT
This combined quarterly report on Form 10-Q is filed by Extended Stay America, Inc., a Delaware corporation (the “Corporation”), and its controlled subsidiary, ESH Hospitality, Inc., a Delaware corporation (“ESH REIT”). Both the Corporation and ESH REIT have securities that have been registered under the Securities Exchange Act of 1933,1934, as amended (the “Securities“Exchange Act”), which are publicly traded and listed on the New York Stock Exchange (the “NYSE”The Nasdaq Global Select Market (“Nasdaq”) as Paired Shares, as defined herein. As further discussed herein, unless otherwise indicated or the context requires, the terms “Company,” “Extended Stay,” “Extended Stay America,” “we,” “our” and “us” refer to the Corporation, ESH REIT and their subsidiaries considered as a single enterprise.
As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, due to the Corporation’s controlling financial interest in ESH REIT, the Corporation consolidates ESH REIT’s financial position, results of operations, comprehensive income and cash flows with those of the Corporation. The Corporation’s stand-alone financial condition and related information is discussed herein where applicable. In addition, with respect to other financial and non-financial disclosure items required by Form 10-Q, any material differences between the Corporation and ESH REIT are discussed herein.
This combined quarterly report on Form 10-Q presents the following sections or portions of sections separately for each of the Company, on a consolidated basis, and ESH REIT, where applicable:
 
•Part I Item 1 – Unaudited Financial Statements
•Part I Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
•Part I Item 3 – Quantitative and Qualitative Disclosures About Market Risk
•Part I Item 4 – Controls and Procedures
This combined quarterly report also includes separate Exhibit 31 and 32 certifications for each of the CorporationExtended Stay America, Inc. and ESH REITHospitality, Inc. in order to establish that the Chief Executive Officer and the Chief Financial Officer of each registrant has made the requisite certifications and that the CorporationExtended Stay America, Inc. and ESH REITHospitality, Inc. are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
We believe combining the quarterly reports on Form 10-Q of the Corporation and ESH REIT into this single report results in the following benefits:
•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, management, development and franchising 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 Corporationregistrants; and ESH REIT; and
•Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.





1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This combined quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts included in this combined quarterly report on Form 10-Q may be forward-looking.
Statements hereinforward-looking, including statements regarding, among other things, our ability to meet our debt service obligations, future capital expenditures (including future acquisitions and hotel renovation programs), our distribution policies, our development, growth and franchise opportunities, anticipated benefits or use of proceeds from any dispositions, our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position and our business outlook, business trends and other information referredfuture events, as well as the COVID-19 pandemic, its effects on the foregoing, government actions taken in response to under “Management’s Discussionthe COVID-19 pandemic and Analysis of Financial Conditionactions that we have or plan to take in response to the pandemic and Results of Operations” and elsewhere in this combined quarterly report on Form 10-Q include forward-looking statements. such effects.
When used in this combined quarterly report on Form 10-Q, the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “look forward to” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may varydiffer materially from what is expressed in or indicated by the forward-looking statements.
As disclosed in our combined annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 201726, 2020 (the “2019 Form 10-K”) and in other filings with the SEC, including this quarterly report on Form 10-Q, there are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this combined quarterly report on Form 10-Q. You should evaluate all forward-looking statements made in this combined quarterly report on Form 10-Q in the context of these risks and uncertainties.
We caution you that the risks, uncertainties and other factors referenced above and throughout this combined quarterly report on Form 10-Q may not contain all of the risks, uncertainties and other factors that may be important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will have the results or affecteffect on us, or our business or operations in the way expected. In particular, no assurance can be given that any of our ongoing, planned or expected strategic initiatives or objectives discussed herein or in other filings with the SEC will be initiated or completed on our expected timing or at all. Estimates and forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

2

PART I — FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 20172020 AND DECEMBER 31, 20162019
(In thousands, except share and per share data)
(Unaudited)

September 30,
2017		 December 31,
2016		June 30,
2020		December 31,
2019
ASSETS   ASSETS
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,094,064 and $973,669$3,790,365
 $3,905,304
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,457,437 and $1,373,950PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,457,437 and $1,373,950$3,487,340  $3,493,549  
RESTRICTED CASHRESTRICTED CASH14,893  14,858  
CASH AND CASH EQUIVALENTS116,660
 84,158
CASH AND CASH EQUIVALENTS667,553  346,812  
RESTRICTED CASH21,370
 21,614
INTANGIBLE ASSETS - Net of accumulated amortization of $9,355 and $8,35027,378
 28,383
INTANGIBLE ASSETS - Net of accumulated amortization of $14,421 and $13,133INTANGIBLE ASSETS - Net of accumulated amortization of $14,421 and $13,13333,018  34,183  
GOODWILL48,910
 53,531
GOODWILL45,192  45,192  
ACCOUNTS RECEIVABLE - Net of allowance for doubtful accounts of $2,598 and $2,63427,418
 20,837
ACCOUNTS RECEIVABLE - Net of allowance for doubtful accounts of $2,715 and $2,749ACCOUNTS RECEIVABLE - Net of allowance for doubtful accounts of $2,715 and $2,74913,396  14,020  
DEFERRED TAX ASSETS11,913
 16,376
DEFERRED TAX ASSETS20,377  16,157  
OTHER ASSETS67,140
 50,101
OTHER ASSETS66,470  65,825  
TOTAL ASSETS$4,111,154
 $4,180,304
TOTAL ASSETS$4,348,239  $4,030,596  
LIABILITIES AND EQUITY
 
LIABILITIES AND EQUITY
LIABILITIES:
 
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
Term loan facility payable - Net of unamortized deferred financing costs and debt discount
of $10,174 and $10,993
Term loan facility payable - Net of unamortized deferred financing costs and debt discount
of $10,174 and $10,993
$616,003  $618,338  
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $32,758 and $35,702
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $32,758 and $35,702
2,017,242  2,014,298  
Revolving credit facilities—
 45,000
Revolving credit facilities399,765  —  
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
Mandatorily redeemable preferred stock - $0.01 par value, $1,000 redemption value,
8.0%, 350,000,000 shares authorized, 708,000 and 7,130,000 shares issued and outstanding
Mandatorily redeemable preferred stock - $0.01 par value, $1,000 redemption value,
8.0%, 350,000,000 shares authorized, 708,000 and 7,130,000 shares issued and outstanding
708  7,130  
Finance lease liabilitiesFinance lease liabilities3,767  3,379  
Accounts payable and accrued liabilities219,481
 193,303
Accounts payable and accrued liabilities208,386  211,181  
Deferred tax liabilities—
 3,286
Total liabilities2,762,739
 2,803,065
Total liabilities3,245,871  2,854,326  
COMMITMENTS AND CONTINGENCIES (Note 12)
 
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY:
 
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
Common stock - $0.01 par value, 3,500,000,000 shares authorized, 177,482,082 and
179,483,397 shares issued and outstanding
Common stock - $0.01 par value, 3,500,000,000 shares authorized, 177,482,082 and
179,483,397 shares issued and outstanding
1,775  1,795  
Additional paid in capital770,314
 774,811
Additional paid in capital724,882  742,397  
Retained earnings80,038
 23,679
Accumulated other comprehensive income (loss)1,980
 (5,615)
Accumulated deficitAccumulated deficit(75,749) (48,283) 
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(489) 383  
Total Extended Stay America, Inc. shareholders’ equity854,255
 794,832
Total Extended Stay America, Inc. shareholders’ equity650,419  696,292  
Noncontrolling interests494,160
 582,407
Noncontrolling interests451,949  479,978  
Total equity1,348,415
 1,377,239
Total equity1,102,368  1,176,270  
TOTAL LIABILITIES AND EQUITY$4,111,154
 $4,180,304
TOTAL LIABILITIES AND EQUITY$4,348,239  $4,030,596  
See accompanying notes to unaudited condensed consolidated financial statements.

3

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands, except per share data)
(Unaudited)


Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 2016 2020201920202019
REVENUES:
 
 
 
REVENUES:
Room revenues$345,089
 $349,076
 $963,505
 $960,046
Room revenues$219,851  $311,614  $474,315  $578,660  
Other hotel revenues5,777
 5,445
 16,715
 14,822
Other hotel revenues6,320  6,070  13,088  11,373  
Franchise and management feesFranchise and management fees1,218  1,447  2,497  2,672  
227,389  319,131  489,900  592,705  
Other revenues from franchised and managed propertiesOther revenues from franchised and managed properties3,445  4,526  7,235  8,621  
Total revenues350,866
 354,521
 980,220
 974,868
Total revenues230,834  323,657  497,135  601,326  
OPERATING EXPENSES:
 
 
 
OPERATING EXPENSES:
Hotel operating expenses152,155
 149,860
 442,726
 444,498
Hotel operating expenses133,435  146,907  278,730  284,198  
General and administrative expenses23,823
 24,612
 75,560
 73,552
General and administrative expenses23,103  22,287  47,041  45,314  
Depreciation and amortization57,314
 55,955
 172,789
 164,274
Depreciation and amortization51,042  49,017  101,562  97,795  
Impairment of long-lived assets—
 2,756
 20,357
 2,756
Impairment of long-lived assets675  —  675  —  
208,255  218,211  428,008  427,307  
Other expenses from franchised and managed propertiesOther expenses from franchised and managed properties4,083  4,996  8,290  9,643  
Total operating expenses233,292
 233,183
 711,432
 685,080
Total operating expenses212,338  223,207  436,298  436,950  
LOSS ON SALE OF HOTEL PROPERTIES (Note 4)—
 —
 (1,897) —
OTHER INCOME344
 2
 2,400
 20
OTHER INCOME1  1  3  28  
INCOME FROM OPERATIONS117,918
 121,340
 269,291
 289,808
INCOME FROM OPERATIONS18,497  100,451  60,840  164,404  
OTHER NON-OPERATING INCOME(278) (305) (426) (1,069)
OTHER NON-OPERATING (INCOME) EXPENSEOTHER NON-OPERATING (INCOME) EXPENSE(302) (171) 401  (349) 
INTEREST EXPENSE, NET31,651
 48,713
 96,958
 131,462
INTEREST EXPENSE, NET33,621  29,766  66,306  59,370  
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
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE(14,822) 70,856  (5,867) 105,383  
INCOME TAX (BENEFIT) EXPENSEINCOME TAX (BENEFIT) EXPENSE(6,052) 11,198  (4,942) 17,321  
NET (LOSS) INCOMENET (LOSS) INCOME(8,770) 59,658  (925) 88,062  
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(12,374) (10,509) (3,286) (8,873)NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(3,593) (6,161) (6,884) (12,631) 
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:
 
 
 
NET (LOSS) INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERSNET (LOSS) INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS$(12,363) $53,497  $(7,809) $75,431  
NET (LOSS) INCOME PER EXTENDED STAY AMERICA, INC. COMMON SHARE:NET (LOSS) INCOME PER EXTENDED STAY AMERICA, INC. COMMON SHARE:
Basic$0.28
 $0.23
 $0.67
 $0.62
Basic$(0.07) $0.28  $(0.04) $0.40  
Diluted$0.28
 $0.23
 $0.66
 $0.61
Diluted$(0.07) $0.28  $(0.04) $0.40  
WEIGHTED-AVERAGE EXTENDED STAY AMERICA, INC. COMMON SHARES OUTSTANDING:
 
 
 
WEIGHTED-AVERAGE EXTENDED STAY AMERICA, INC. COMMON SHARES OUTSTANDING:
Basic192,357
 200,556
 193,399
 202,156
Basic177,551  188,450  177,771  188,399  
Diluted193,331
 200,696
 194,001
 202,252
Diluted177,551  188,813  177,771  188,695  
See accompanying notes to unaudited condensed consolidated financial statements.



4

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands)
(Unaudited)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
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
 $125,014
Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
NET (LOSS) INCOME$(8,770) $59,658  $(925) $88,062  
OTHER COMPREHENSIVE INCOME:
INTEREST RATE CASH FLOW HEDGE GAIN (LOSS), NET OF TAX OF $8, $(343), $(299) and $(591)45  (1,984) (1,702) (3,422) 
COMPREHENSIVE (LOSS) INCOME(8,725) 57,674  (2,627) 84,640  
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(3,615) (5,162) (6,054) (10,908) 
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS$(12,340) $52,512  $(8,681) $73,732  
See accompanying notes to unaudited condensed consolidated financial statements.



5

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands, except per share data)
(Unaudited)

 Common Stock 
Additional
Paid in Capital
 Retained Earnings Accumulated Other Comprehensive Loss 
Total
Extended Stay
America, Inc. Shareholders' Equity
 
Non-
controlling Interests
 
Total
Equity
 Shares Amount      
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 StockAdditional
Paid in Capital		Retained EarningsAccumulated Other Comprehensive IncomeTotal Extended Stay America, Inc.
Shareholders’
Equity		Noncontrolling InterestsTotal
Equity
SharesAmount
BALANCE - April 1, 2019188,403  $1,884  $750,135  $41,116  $1,774  $794,909  $501,742  $1,296,651  
Net income—  —  —  53,497  —  53,497  6,161  59,658  
Interest rate cash flow hedge loss, net of tax—  —  —  —  (985) (985) (999) (1,984) 
Corporation common distributions - $0.09 per common share—  —  —  (17,062) —  (17,062) —  (17,062) 
ESH REIT common distributions - $0.14 per Class B common share—  —  —  —  —  —  (26,542) (26,542) 
ESH REIT preferred distributions—  —  —  —  —  —  (4) (4) 
Adjustment to reflect changes in book value of noncontrolling interests—  —  (75) —  —  (75) 75  —  
Equity-based compensation9  —  1,407  —  —  1,407  899  2,306  
BALANCE - June 30, 2019188,412  $1,884  $751,467  $77,551  $789  $831,691  $481,332  $1,313,023  
 Common Stock 
Additional
Paid in Capital
 Retained Earnings Accumulated Other Comprehensive (Loss) Income 
Total
Extended Stay
America, Inc. Shareholders' Equity
 
Non-
controlling Interests
 
Total
Equity
 Shares Amount      
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

Common StockAdditional
Paid in Capital		Accumulated DeficitAccumulated Other Comprehensive LossTotal Extended Stay America, Inc.
Shareholders’
Equity		Noncontrolling InterestsTotal
Equity
SharesAmount
BALANCE - April 1, 2020177,466  $1,775  $723,285  $(63,394) $(512) $661,154  $449,730  $1,110,884  
Net (loss) income—  —  —  (12,363) —  (12,363) 3,593  (8,770) 
Interest rate cash flow hedge gain, net of tax—  —  —  —  23  23  22  45  
Corporation common distributions - $0 per common share—  —  —  8  —  8  —  8  
ESH REIT common distributions - $0.01 per Class B common share—  —  —  —  —  —  (1,773) (1,773) 
ESH REIT preferred distributions—  —  —  —  —  —  (4) (4) 
Adjustment to reflect changes in book value of noncontrolling interests—  —  351  —  —  351  (351) —  
Equity-based compensation16  —  1,246  —  —  1,246  732  1,978  
BALANCE - June 30, 2020177,482  $1,775  $724,882  $(75,749) $(489) $650,419  $451,949  $1,102,368  



 Common StockAdditional
Paid in Capital		Retained EarningsAccumulated Other Comprehensive IncomeTotal Extended Stay America, Inc.
Shareholders’
Equity		Noncontrolling InterestsTotal
Equity
 SharesAmount
BALANCE - January 1, 2019188,219  $1,882  $749,219  $32,432  $2,488  $786,021  $524,618  $1,310,639  
Net income—  —  —  75,431  —  75,431  12,631  88,062  
Interest rate cash flow hedge loss, net of tax—  —  —  —  (1,699) (1,699) (1,723) (3,422) 
Corporation common distributions - $0.16 per common share—  —  —  (30,312) —  (30,312) —  (30,312) 
ESH REIT common distributions - $0.29 per Class B common share—  —  —  —  —  —  (54,940) (54,940) 
ESH REIT preferred distributions—  —  —  —  —  —  (8) (8) 
Adjustment to reflect changes in book value of noncontrolling interests—  —  400  —  —  400  (400) —  
Equity-based compensation193  2  1,848  —  —  1,850  1,154  3,004  
BALANCE - June 30, 2019188,412  $1,884  $751,467  $77,551  $789  $831,691  $481,332  $1,313,023  

 Common StockAdditional
Paid in Capital		Accumulated DeficitAccumulated Other Comprehensive (Loss) IncomeTotal Extended Stay America, Inc.
Shareholders’
Equity		Noncontrolling InterestsTotal
Equity
 SharesAmount
BALANCE - January 1, 2020179,483  $1,795  $742,397  $(48,283) $383  $696,292  $479,978  $1,176,270  
Net (loss) income—  —  —  (7,809) —  (7,809) 6,884  (925) 
Interest rate cash flow hedge loss, net of tax—  —  —  —  (872) (872) (830) (1,702) 
Repurchase of Corporation common stock and ESH REIT Class B common stock (Paired Shares)(2,237) (22) —  (19,665) —  (19,687) (11,406) (31,093) 
Corporation common distributions - $0.09 per common share—  —  (15,981) 8  —  (15,973) —  (15,973) 
ESH REIT common distributions - $0.15 per Class B common share—  —  —  —  —  —  (26,615) (26,615) 
ESH REIT preferred distributions—  —  —  —  —  —  (8) (8) 
Adjustment to reflect changes in book value of noncontrolling interests—  —  (2,968) —  —  (2,968) 2,968  —  
Equity-based compensation236  2  1,434  —  —  1,436  978  2,414  
BALANCE - June 30, 2020177,482  $1,775  $724,882  $(75,749) $(489) $650,419  $451,949  $1,102,368  
See accompanying notes to unaudited condensed consolidated financial statements.

6

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands)
(Unaudited)

Nine Months Ended
September 30,		Six Months Ended
June 30,
2017 2016 20202019
OPERATING ACTIVITIES:   OPERATING ACTIVITIES:
Net income$132,038
 $133,204
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation171,784
 163,269
Amortization of intangible assets1,005
 1,005
Foreign currency transaction gain(782) (1,069)
Loss on interest rate swap709
 —
Amortization and write-off of deferred financing costs and debt discount6,072
 29,012
Amortization of above-market ground leases(102) (102)
Net (loss) incomeNet (loss) income$(925) $88,062  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization101,562  97,795  
Foreign currency transaction loss (gain)Foreign currency transaction loss (gain)401  (349) 
Amortization of deferred financing costs and debt discountAmortization of deferred financing costs and debt discount4,129  3,993  
Loss on disposal of property and equipment8,065
 7,255
Loss on disposal of property and equipment4,979  3,377  
Loss on sale of hotel properties1,897
 —
Impairment of long-lived assets20,357
 2,756
Impairment of long-lived assets675  —  
Equity-based compensation9,049
 8,635
Equity-based compensation2,990  4,255  
Deferred income tax benefit(2,602) (28,782)Deferred income tax benefit(3,921) (2,385) 
Changes in assets and liabilities:   Changes in assets and liabilities:
Accounts receivable, net(6,754) (9,137)Accounts receivable, net624  (3,464) 
Other assets(4,212) 1,442
Other assets(3,190) (3,331) 
Accounts payable and accrued liabilities32,895
 28,502
Accounts payable and accrued liabilities2,994  16,144  
Net cash provided by operating activities369,419
 335,990
Net cash provided by operating activities110,318  204,097  
INVESTING ACTIVITIES:   INVESTING ACTIVITIES:
Purchases of property and equipment(132,875) (166,454)Purchases of property and equipment(63,317) (84,785) 
Proceeds from sale of hotel properties47,952
 —
Decrease in restricted cash and insurance collateral244
 62,945
Development in process paymentsDevelopment in process payments(41,537) (21,841) 
Payment for intangible assetsPayment for intangible assets(455) (6,296) 
Proceeds from insurance and related recoveries471
 2,716
Proceeds from insurance and related recoveries987  613  
Net cash used in investing activities(84,208) (100,793)Net cash used in investing activities(104,322) (112,309) 
FINANCING ACTIVITIES:   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
Principal payments on term loan facilityPrincipal payments on term loan facility(3,154) (5,683) 
Proceeds from revolving credit facilities105,000
 50,000
Proceeds from revolving credit facilities399,765  —  
Payments on revolving credit facilities(150,000) (25,000)
Payments of deferred financing costs—
 (33,060)Payments of deferred financing costs(172) —  
Principal payments on finance leasesPrincipal payments on finance leases(69) (58) 
Tax withholdings related to restricted stock unit settlements(3,548) (2,229)Tax withholdings related to restricted stock unit settlements(815) (1,571) 
Issuance of common stock—
 6
Repurchase of common stock(58,781) (69,600)
Repurchase of Corporation common stock and ESH REIT Class B common stock (Paired Shares)Repurchase of Corporation common stock and ESH REIT Class B common stock (Paired Shares)(31,093) —  
Repurchase of Corporation mandatorily redeemable preferred stock(14,069) —
Repurchase of Corporation mandatorily redeemable preferred stock(6,422) —  
Corporation common distributions(34,978) (42,508)Corporation common distributions(16,177) (30,287) 
ESH REIT common distributions(83,616) (120,116)ESH REIT common distributions(26,997) (54,938) 
ESH REIT preferred distributions(16) (8)ESH REIT preferred distributions(8) (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
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities314,858  (92,545) 
CHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH DUE TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATESCHANGES IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH DUE TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES(78) 61  
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASHNET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH320,776  (696) 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of periodCASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period361,670  303,336  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of periodCASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period$682,446  $302,640  
SUPPLEMENTAL CASH FLOW INFORMATION:   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
Cash payments for interest, excluding modification, prepayment and other penalties, net of capitalized interest of $1,643 and $751Cash payments for interest, excluding modification, prepayment and other penalties, net of capitalized interest of $1,643 and $751$64,311  $57,902  
Cash payments for income taxes, net of refunds of $181 and $0Cash payments for income taxes, net of refunds of $181 and $0$1,024  $16,583  
Operating cash payments for finance leasesOperating cash payments for finance leases$118  $122  
Operating cash payments for operating leasesOperating cash payments for operating leases$1,435  $1,380  
NONCASH INVESTING AND FINANCING ACTIVITIES:   NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures included in accounts payable and accrued liabilities$17,132
 $20,600
Capital expenditures included in accounts payable and accrued liabilities$19,042  $27,618  
Deferred financing costs included in accounts payable and accrued liabilities$—
 $1,146
Proceeds from sale of hotel properties included in other assets$12,675
 $—
Additions to finance lease right-of-use assets and liabilitiesAdditions to finance lease right-of-use assets and liabilities$457  $109  
Corporation common distributions included in accounts payable and accrued liabilities$721
 $327
Corporation common distributions included in accounts payable and accrued liabilities$229  $380  
ESH REIT common distributions included in accounts payable and accrued liabilities$1,623
 $1,241
ESH REIT common distributions included in accounts payable and accrued liabilities$385  $794  
See accompanying notes to unaudited condensed consolidated financial statements.

7

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBERJUNE 30, 20172020 AND DECEMBER 31, 20162019 AND FOR THE THREE ANDNINE SIX MONTHS ENDED
SEPTEMBERJUNE 30, 20172020 AND 20162019
(Unaudited)

1.BUSINESS, ORGANIZATION AND BASIS OF CONSOLIDATION
1. BUSINESS, ORGANIZATION AND BASIS OF CONSOLIDATION
Extended Stay America, Inc. (the “Corporation”) was incorporated in the state of Delaware on July 8, 2013. ESH Hospitality, Inc. (“ESH REIT”) was formed as a limited liability company in the state of Delaware on September 16, 2010 and was converted to a corporation on November 5, 2013. On November 18, 2013, the Corporation and ESH REIT completed an initial public offering of 32.5 million Paired Shares. A "Paired Share" consists of one share of common stock, par value $0.01 per share, of the Corporation, that is attached to and trades as a single unit with one share of Class B common stock, par value $0.01 per share, of ESH REIT. The Corporation owns, and is expected to continue to own, all of the issued and outstanding Class A common stock of ESH REIT, which, as of SeptemberJune 30, 2017,2020, represents approximately 57%59% of the outstanding common stock of ESH REIT. Due to its controlling interest in ESH REIT, the Corporation consolidates the financial position, results of operations, comprehensive income and cash flows of ESH REIT. The term, “the Company,” as used herein refers to the Corporation and its consolidated subsidiaries, including ESH REIT.
A “Paired Share” consists of 1 share of common stock, par value $0.01 per share, of the Corporation, that is attached to and trades as a single unit with 1 share of Class B common stock, par value $0.01 per share, of ESH REIT. Each outstanding share of Corporation common stock is attached to and trades with 1 share of ESH REIT Class B common stock.
The Company is an integrated owner/operator of Extended Stay America-branded hotels and is also engaged in franchising and managing extended stay hotels for third parties in the U.S. As of SeptemberJune 30, 2017,2020 and December 31, 2019, the Company owned and operated 625561 and 557 hotel properties, respectively, in 4440 U.S. states, consisting of approximately 68,800 rooms. As of December 31, 2016, the Company owned62,400 and operated 62661,900 rooms, respectively, and franchised or managed 75 and 73 hotel properties in 44 U.S. states,for third parties, respectively, consisting of approximately 68,9007,700 and 7,500 rooms, and threerespectively. As of June 30, 2020, all 636 system-wide hotels in Canada, consisting of 500 rooms. Thewere operated under the Extended Stay America brand.
Owned hotel properties are owned by wholly-owned subsidiaries of ESH REIT and are operated by wholly-owned subsidiaries of the Corporation (the “Operating Lessees”) pursuant to leases between ESH REIT and the Operating Lessees. The hotels are managed by ESA Management LLC (“ESA Management”), a wholly-owned subsidiary of the Corporation. TheCorporation, which also manages 25 hotels are operated under the core brand, Extended Stay America.on behalf of third parties. The Extended Stay America brand is owned by ESH Hospitality Strategies LLC (“ESH Strategies”), also a wholly-owned subsidiary of the Corporation. ESH Strategies licenses the brand and intellectual property to its subsidiaries, which license them to the Operating Lessees and third parties.
As of SeptemberJune 30, 2017, 2020 and December 31, 2019, the Corporation had approximately 192.3177.5 million shares and 179.5 million shares of common stock outstanding, approximately 99.3% of which were owned by the public and approximately 0.7% of which were owned by senior management and certain directors.respectively. As of SeptemberJune 30, 2017,2020 and December 31, 2019, ESH REIT’s common equity consisted of the following: (i) approximately 250.5 million shares of Class A common stock outstanding (approximately 57%(59% and 58%, respectively, of its common equity), all of which were owned by the Corporation, and (ii) approximately 192.3177.5 million shares and 179.5 million shares of Class B common stock outstanding, (approximately 43%respectively (41% and 42%, respectively, of its common equity), approximately 99.3% of which were owned by the public and approximately 0.7% of which were owned by senior management and directors. .

As of December 31, 2016, the Corporation had approximately 195.4 million shares of common stock outstanding, approximately 55.9% of which were owned by the public and approximately 44.1% of which were owned by Centerbridge Partners, L.P., Paulson & Co. Inc. and The Blackstone Group L.P. and their funds or affiliates (individually, each a "Former Sponsor," or collectively, the “Former Sponsors”) and senior management and certain directors. As of December 31, 2016, ESH REIT’s common equity consisted of the following: (i) approximately 250.5 million shares of Class A common stock outstanding (approximately 56% of its common equity), all of which were owned by the Corporation, and (ii) approximately 195.4 million shares of Class B common stock outstanding (approximately 44% of its common equity), approximately 55.9% of which were owned by the public and approximately 44.1% of which were owned by the Former Sponsors and senior management and directors. 
2017 Secondary Offerings
In March, May and June 2017, certain selling stockholders (the "Selling Stockholders") sold 25.0 million, 30.0 million and 25.0 million Paired Shares, respectively, pursuant to an automatic shelf registration statement as part of secondary offerings. In conjunction with these secondary offerings, the Corporation and ESH REIT repurchased and retired, in the aggregate, approximately 2.0 million Paired Shares for approximately $21.4 million and $12.2 million, respectively (see Note 11). The Selling Stockholders consisted solely of entities affiliated with the Former Sponsors and did not include officers or directors of the Corporation or ESH REIT. Neither the Corporation nor ESH REIT sold Paired Shares in the secondary offerings and neither received proceeds from the secondary offerings. The Corporation and ESH REIT incurred professional fees in connection with the secondary offerings totaling approximately $0.1 million and $1.1 million for the three and nine months ended September 30, 2017, respectively.

After giving effect to the June 2017 secondary offering, funds or affiliates of Paulson & Co. Inc. own approximately 1.8 million Paired Shares, while funds or affiliates of Centerbridge Partners, L.P. and The Blackstone Group L.P. no longer own any Paired Shares.
Paired Share Repurchase Program
—In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program. As a result of several increases in authorized amounts and 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 ofextensions, 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 ofcurrently authorizes the Corporation and ESH REIT authorized an increase of the combined Paired Share repurchase program fromto purchase up to $200$550 million to up to $300 million ofin Paired Shares and extended the maturity of the program through December 31, 2017, each effective January 1, 2017.2020. Repurchases may be made at management'smanagement’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). Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice. As of SeptemberJune 30, 2017,2020, the Corporation and ESH REIT had repurchased and retired approximately 12.828.6 million Paired Shares for approximately $123.5$283.0 million and $75.2$166.4 million, including transaction fees, respectively, of which 5.8and $101.1 million remained available under the combined Paired Shares were repurchased and retired from entities affiliated with the Former Sponsors.Share repurchase program.
Basis of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), and include the financial position, results of operations, comprehensive income, changes in equity and cash flows of the Corporation and its consolidated subsidiaries, including ESH REIT. Third partyThird-party equity interests in the Corporation's consolidated subsidiaries are presented as noncontrolling interests. Despite the fact that each share of Corporation common stock is paired on a one-for-one1-for-one basis with each share of ESH REIT Class B common stock, the Corporation does not own the ESH REIT Class B common stock; therefore, ESH REIT Class B common stock represents a third party
8

third-party equity interest. As such, the rights associated with the ESH REIT Class B common stock, along with other third partythird-party equity interests in ESH REIT, which include 125 shares of preferred stock, are presented as noncontrolling interests in the accompanying unaudited condensed consolidated financial statements. Changes in ownership interests in a consolidated subsidiary that do not result in a loss of control are accounted for as equity transactions. All intercompany accounts and transactions have been eliminated.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Presentation—Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been condensed or omitted in the accompanying unaudited condensed consolidated financial statements. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 20162019 included in the combined annual report on Form 10-K filed with the SECU.S. Securities and Exchange Commission (“SEC”) on February 28, 2017.26, 2020.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company’s financial position as of SeptemberJune 30, 2017,2020, the results of the Company’s operations, and comprehensive income and changes in equity for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016 and changes in equity2019 and cash flows for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. Interim results are not necessarily indicative of full year performance because of the impact of seasonal, and short-term or other market variations, including the impact of the COVID-19 pandemic, as well as the impact of acquisitions, dispositions, hotel renovations.renovations and financing or other capital transactions.
Use of Estimates—The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management used significant estimates to determine the estimated useful lives of tangible assets, as well as in the assessment of tangible and intangible assets including goodwill, for impairment, estimated liabilities for insurance reserves and the grant-date fair value of certain equity-based awards.income taxes. Actual results could differ from those estimates.
Property and Equipment—Property and equipment additions are recorded at cost. Major improvements that extend the life or utility of property or equipment are capitalized and depreciated over a period equal to the shorter of the estimated useful life of the improvement or the remaining estimated useful life of the asset. Ordinary repairs and maintenance are charged to

expense as incurred. Depreciation and amortization are recorded on a straight-line basis over estimated useful lives which range from two2 to 49 years.
Management assesses the performance of long-lived assets for potential impairment quarterly, as well as when events or changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The identification of events or changes in circumstances that indicate the carrying value of assets may not be recoverable requires judgment. The Company reviews for impairment indicators at the lowest level of identifiable cash flows based on quantitative, qualitative and certain industry-related factors. Quantitative factors include, but are not limited to, hotel property EBITDA, EBITDA margins and EBITDA multiples, and serve to screen assets with historical, current or projected operating cash flow losses or deterioration. Qualitative factors include a change in physical condition, economic environment, regulatory environment or primary use, including the evaluation of the asset for disposition.
Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property or group of hotel properties to the estimated future undiscounted cash flows expected to be generated by eachthe hotel property.property or group of hotel properties. Impairment is recognized when estimated future undiscounted cash flows, including expected proceeds from disposition, are less than the carrying value of eachthe hotel property.property or group of hotel properties. To the extent that a hotel property or group of hotel properties is impaired, the excess carrying amount over its estimated fair value is recognized as an impairment charge and reduces income from operations.charge. Fair value is determined based upon the discounted cash flows of the hotel property or group of hotel properties, bids, quoted market prices or independent appraisals, as considered necessary.
The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating performance and current and future market conditions. It is possible that such judgments and/or estimates will change; in particular, the effects of the COVID-19 pandemic could cause economic and market conditions to continue to deteriorate, and if this occurs, or if the Company's expected holding period for real estate assets changes, the Company recognized nomay recognize impairment charges related to propertyor losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets. During three and equipment for the threesix months ended SeptemberJune 30, 2017 and recognized approximately $20.4 million of impairment charges for2020, the nine months ended September 30, 2017 (see Note 5). The Company recognized an impairment charge of approximately $2.8$0.7 million for eachrelated to an undeveloped land parcel. Based on market conditions and the Company's plans with respect to its hotel properties as of June 30, 2020, the Company believes that the carrying amounts of its
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hotel properties are recoverable and no additional impairment charges were recorded during the three and ninesix months ended SeptemberJune 30, 2016 (see Note 5).2020; however, actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the COVID-19 pandemic.
Intangible Assets and Goodwill—Intangible assets include trademarks, corporate customer relationships and licenses related to certain internal-use software. Corporate customer relationships and software licenses are amortized using the straight-line method over their estimated useful lives; the estimated useful life of customer relationships is 20 years, and the estimated useful life of software licenses is the remaining non-cancellable term of each respective contract. Trademarks are not amortized. Goodwill represents the purchase price in excess of the fair value of net assets acquired in conjunction with the acquisition of the Company's predecessor in 2010.
Definite-lived intangible assets are reviewed for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite-lived intangible assets, including goodwill, are reviewed for impairment quarterly, and the Company tests for impairment more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The estimationCompany has 2 reportable operating segments, owned hotels and franchise and management. There is no goodwill associated with the Company's franchise and management segment. Management analyzes goodwill associated with all owned hotels when analyzing for potential impairment. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of future undiscounted cash flowsa reporting unit is inherently uncertainless than its carrying amount.
As of June 30, 2020, the Company believes that the carrying amount of its intangible assets, including goodwill, are recoverable and relies upon assumptions regarding currentthere are no changes in circumstances that would more likely than not reduce the fair value of its reporting units below their carrying amount; therefore, 0 impairment charges were recorded during the three and futuresix months ended June 30, 2020. However, if the effects of the COVID-19 pandemic cause economic and market conditions. Ifconditions to continue to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the COVID-19 pandemic.
Revenue from Owned and Operated Hotels—Revenue generated from owned and operated hotels consists of room and other hotel revenues recognized when services are provided. When a reservation is made, the Company deems that the parties have approved a contract in accordance with customary business practices and are committed to perform their respective obligations. At such conditions change,time, each party’s rights regarding the services to be transferred are identified, payment terms are specified, the contract has commercial substance and, in most instances, it is probable the Company will collect substantially all consideration to which it will be entitled in exchange for services.
Each room night consumed by a guest with a cancellable reservation represents a contract whereby the Company has a performance obligation to provide the room night at an impairment chargeagreed upon price. For cancellable reservations, the Company recognizes revenue as each performance obligation (i.e., each room night) is met. Such contract is renewed if the guest continues their stay. For room nights consumed by a guest with a non-cancellable reservation, the entire reservation period represents the contract term whereby the Company has a performance obligation to further reduceprovide the carrying valueroom night or nights at an agreed upon price. For non-cancellable reservations, the Company recognizes revenue over the term of the performance period (i.e., the reservation period) as room nights are consumed. For these reservations, the room rate is typically fixed over the reservation period. The Company uses an output method based on performance completed to date (i.e., room nights consumed) to determine the amount of revenue it recognizes on a daily basis if the length of a hotel property could occur in a future period in which conditions change.non-cancellable reservation exceeds one night since consumption of room nights indicates when services are transferred to the guest. In certain instances, variable consideration may exist with respect to the transaction price, such as discounts, coupons and price concessions made upon guest checkout.
Segments—In evaluating its performance obligation, the Company bundles the obligation to provide the guest the room itself with other obligations (such as free WiFi, grab and go breakfast, access to on-site laundry facilities and parking), as the other obligations are not distinct and separable because the guest cannot benefit from the additional amenities without the consumed room night. The Company’s obligation to provide the additional items or services is not separately identifiable from the fundamental contractual obligation (i.e., providing the room and its contents). The Company has no performance obligations once a guest’s stay is complete.
Certain revenues are generated through third-party intermediaries or distribution channels (i.e., online travel agents). Regardless of the basis on which the Company is compensated (i.e., gross or net), the Company is responsible for fulfilling the promise to provide the hotel operations representroom and related services to the guest and retains inventory risk. Since the Company controls the inventory and services provided and because third-party intermediaries are typically not contractually required to guarantee room night consumption, the Company is the principal in these transactions. As such, the Company is required to record
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revenue at an amount equal to the price charged to the guest (i.e., on a single operating segmentgross basis). Third-party intermediaries that pay the Company directly (i.e., on a net basis) typically charge the guest additional fees, blend the room offering with other offerings at amounts which are not allocable and may adjust the price without the Company’s approval. As such, the Company is unable to calculate the room rate charged to the guest. Since any estimate the Company would make has significant uncertainty that ultimately would not be resolved, despite its role as principal, in these instances the Company records revenue equal to the amount paid by the third-party intermediaries (i.e., the net amount).
Revenue from Franchise and Management Fees—Revenue generated from franchise and management fees consists of the following:
•Franchise fees, which consist of an initial fee and an ongoing royalty fee based on a percentage of a hotel’s monthly revenue in exchange for the wayaccess to and use of the Company’s brand name and other intellectual property. Initial fees are deferred and recognized over the expected contract or customer life. Royalty fees are recognized over time as franchisees derive value from the license to use the intellectual property.
•Management fees, which consist of an ongoing base fee calculated as a percentage of a hotel’s monthly revenue in exchange for on-site hotel management services. Management fees are recognized over time as third-party hotel owners derive value from on-site personnel and related services.
•Other revenues from franchised and managed properties, which include the reimbursement of costs incurred on behalf of third-party hotel owners on a direct and an indirect basis, as follows:
◦Direct costs incurred with respect to management and franchise agreements include on-site hotel personnel and incremental reservation and distribution costs for which the Company is reimbursed on a dollar-for-dollar basis. Since the Company employs the hotel personnel and has discretion over reservation and distribution costs, it is the principal with respect to these services and revenue is recognized on a gross basis.
◦Indirect costs incurred with respect to franchise agreements include costs associated with certain shared system-wide platforms (i.e., system services), such as marketing, technology infrastructure, central reservations, national sales and revenue management systems. The Company is reimbursed for indirect costs through a system service fee, or program fee, based on a percentage of a hotel’s monthly revenue. System service fees are recognized over time as franchisees derive value from the license to use these processes and systems. The Company has discretion over how it spends system service fees and is the principal with respect to these services. Revenue is recognized on a gross basis; expense is recognized as incurred. Over time, the Company manages its business. The Company’s hotels provide similar services, use similar processes to sell those services and sell thosesystem services to similar classesbreak-even, but the timing of customers. system service fee revenues will typically not align with expenses incurred to operate the programs.
The amountspromise to provide access to the Company’s intellectual property is combined with the promise to provide system services to form a single performance obligation since the promises generally accompany one another. Hotel management services form a single performance obligation. As noted above, each identified performance obligation is considered to be a series of long-lived assetsservices transferred over time. Revenue is recognized on an output method based on performance completed to date. The Company recognizes revenue in the amount to which it has a right to bill third parties under their respective franchise or management agreements, as it has a right to consideration in an amount that corresponds directly with the third parties’ hotel revenues. Franchise, management and netsystem service fees are characterized as variable consideration and vary from period to period. In the event that fees include variables that extend beyond the current period, the Company uses the most likely amount method to determine the amount of revenue to record based on a reasonable revenue forecast for the applicable hotel. In most instances, the Company does not have constraining estimates, as third-party hotel revenues outside the U.S. are not significant for any period presented.typically available and obtained monthly.
Recently Issued Accounting Standards
Reference Rate Reform—In March 2020, the FASB issued an accounting standards update that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR, subject to meeting certain criteria. The Company adopted this update on March 12, 2020, and the update is effective through December 31, 2022, during which time the Company may elect to apply the optional expedients and exceptions offered under the standard. The Company's variable rate debt and interest rate swap are tied to rates that reference LIBOR (see Notes 7 and 8). As of June 30, 2020, the Company had not applied any of these optional expedients or exceptions. The adoption of this update did not, and is not expected to, have a material effect on the Company's condensed consolidated financial statements.
IncomeTaxes—In December 2019, the FASB issued an accounting standards update which simplifies the accounting for income taxes. The update amends several topics including interim period accounting for enacted changes in tax law and year-
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to-date loss limitation in interim-period tax accounting. This update will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, and may be early adopted. The Company does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements.
Fair Value Measurement—In August 2018, the FASB issued an accounting standards update which modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The Company adopted this update on January 1, 2020. The adoption of this update did not have a material effect on the Company's condensed consolidated financial statements.
Intangibles-Goodwill and Other—Internal-Use Software—In August 2018, the FASB issued an accounting standards update which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The Company adopted this update on January 1, 2020, using a prospective transition method. The adoption of this update did not have a material effect on the Company's condensed consolidated financial statements.
Goodwill—In January 2017, the FASB issued an accounting standards update in which the guidance on testing for goodwill was updated to eliminate Step 2 in the determination on whether goodwill should be considered impaired. Annual and/or interim assessments are still required to be completed. This update will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of this update to have a material effect on the Company’s unaudited condensed consolidated financial statements.
Statement of Cash Flows—In August and November 2016, the FASB issued accounting standards updates which provide additional clarity on the classification of specific events on the statement of cash flows. These events include debt prepayment and extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, distributions received from equity method investees, and beneficial interests in securitization transactions. These updates also require amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. These updates are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, with early adoption permitted and should be applied using a retrospective transition method to each period presented. The adoption of these updates will require cash outflows related to debt prepayment and extinguishment costs to be classified as financing activities. For the nine months ended September 30, 2017 and 2016, debt prepayment and extinguishment costs included within net cash provided by operating activities totaled approximately $1.2 million and $3.9 million, respectively. Additionally, the effect of the adoption of these updates on the Company's consolidated statements of cash flows will be to include restricted cash in the beginning and end of period balances of cash, restricted cash and cash equivalents. The change in restricted cash is currently included in investing activities in the consolidated statements of cash flows.
Compensation—Stock Compensation—In March 2016, the FASB issued an accounting standards update which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, and certain classifications on the statement of cash flows.required. The Company adopted this update on January 1, 20172020, using a prospective transition method. The adoption of this update did not have a material effect on the Company’s unauditedCompany's condensed consolidated financial statements.
Financial Instruments—Credit Losses—In May 2017, the FASB issued an accounting standards update that provides guidance about which changes to the terms or conditions of a share-based payment award requires an entity to apply modification accounting. This update will be effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted and should be applied prospectively to awards modified on or after the adoption date. The Company does not expect the adoption of this update to have a material effect on the Company’s unaudited condensed consolidated financial statements.

Derivatives and Hedging—In August 2017,June 2016, the FASB issued an accounting standards update which changesrequires the designation and measurement guidanceof an impairment allowance for qualifying hedging relationships and the presentation of hedging results. This update expands and refines hedge accounting and aligns recognition and presentation of its effects within thecertain financial statements. This update is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and will require a cumulative-effect adjustment to the balance of retained earnings as of the beginning of the fiscal year that an entity adopts this update. The Company is currently assessing the impact the adoption of the update will have on its consolidated financial statements. Expected impacts include,assets based on a prospective basis, the elimination of hedge ineffectiveness related to designated interest rate swaps, the presentationcompany’s current estimate of all interest rate hedge related items that impact earnings in the interest expense line item in the consolidated statement of operations and an election to perform qualitative assessments of hedge effectiveness.
In March 2016, the FASB issued an accounting standards update to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts and to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrumentcontractual cash flows it does not expect to collect. The new standard primarily impacts the manner in which the Company estimates its allowance for uncollectible trade receivables. The standard requires the Company to measure its allowance for doubtful accounts based on current conditions, historical experience and reasonable and supportable forecasts for each pool of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met.receivables with similar risk characteristics. The Company adopted this update on January 1, 2017.2020, using a modified retrospective method. The adoption of this update did not have a material effect on the Company’s unauditedCompany's condensed consolidated financial statements.
Leases— In February 2016, the FASB issued an accounting standards update which introduces a lessee model that requires a right-of-use assetstatements and lease obligation to be presented on the balance sheet for all leases, whether operating or financing. The update eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The update also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. This update will be effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and must be applied using a modified retrospective approach, which will require adjustment to all comparative periods presented.
As of September 30, 2017, using its incremental borrowing rate with respect to the future minimum lease payments under its operating leases (ground leases and corporate office lease), the Company has preliminarily estimated that the lease liability would have been between approximately $15.0 million and $19.0 million and the right of use asset would have been between approximately $7.0 million and $11.0 million, which includes adjustments for accrued lease payments, above market lease liabilities and lease incentives.
The recording of a lease obligation may increase total indebtedness for purposes of financial covenants within certain of the Company’s existing debt agreements; however, the Company currently does not expect this increase to cause instances of non-compliance with any of these covenants. The Company does not expect the adoption of this update to have a materialhad no effect on its consolidated statements of operations or cash flows. The Company expectsimpact to elect the optional practical expedients which relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The election to apply these practical expedients will, in effect, mean the Company will continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that the Company will recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.retained earnings.
Contractual Revenue—Since May 2014, the FASB has issued several accounting standards updates which replace existing revenue recognition accounting standards. These updates are based on the principle that revenue is recognized when an entity transfers control of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These updates also require more detailed disclosure to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. These updates permit transition under the full retrospective method, the modified retrospective approach that utilizes certain practical expedients and the cumulative effect method. These updates are effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016.
The Company will adopt the standard on January 1, 2018 using the modified retrospective transition method. The Company does not expect the standard to impact the amount or timing of revenue recognition from owned and managed hotels, which, other than sales of real estate, represents its sole revenue stream through September 30, 2017. The Company has generally not had continuing involvement with hotels it has sold and control of sold assets has transferred to their respective buyers at closing with no contingencies. Accordingly, the Company does not expect the standard to impact the amount or3. NET (LOSS) INCOME PER SHARE

timing of revenue (or gain/loss) recognition related to sales of real estate. The Company expects that upon adoption, the notes to its consolidated financial statements will include enhanced revenue-related disclosures. Additional disclosures are expected to include disaggregated revenue categories that highlight the nature of revenues impacted by specific economic factors, future performance obligations, such as future room reservations, and judgments or changes in judgments used in applying the new standard.
3.NET INCOME PER SHARE
Basic net (loss) income per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of the Corporation’s unrestricted common stock outstanding. Diluted net (loss) income per share is computed by dividing net income available to common shareholders, as adjusted for potentially dilutive securities, by the weighted-average number of shares of the Corporation’s unrestricted common stock outstanding plus other potentially dilutive securities. Dilutive securities include certain equity-based awards issued under long-term incentive plans (see Note 13) and are included in the calculation provided that the inclusion of such securities is not anti-dilutive.
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The calculations of basic and diluted net (loss) income per share, including a reconciliation of the numerators and denominators, are as follows (in thousands, except per share data):
 Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Numerator:
Net (loss) income available to Extended Stay America, Inc. common shareholders - basic$(12,363) $53,497  $(7,809) $75,431  
Income attributable to noncontrolling interests assuming conversion(3) (7) (5) (12) 
Net (loss) income available to Extended Stay America, Inc. common shareholders - diluted$(12,366) $53,490  $(7,814) $75,419  
Denominator:
Weighted-average number of Extended Stay America, Inc. common shares outstanding - basic177,551  188,450  177,771  188,399  
Dilutive securities—  363  —  296  
Weighted-average number of Extended Stay America, Inc. common shares outstanding - diluted$177,551  $188,813  $177,771  $188,695  
Net (loss) income per Extended Stay America, Inc. common share - basic$(0.07) $0.28  $(0.04) $0.40  
Net (loss) income per Extended Stay America, Inc. common share - diluted$(0.07) $0.28  $(0.04) $0.40  
Anti-dilutive securities excluded from net loss per common share293—237—

4. HOTEL ACQUISITIONS
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
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


4.HOTEL DISPOSITIONS
NaN hotels were acquired during the three and six months ended June 30, 2020. On May 1, 2017,November 12, 2019, the Company sold its three Extended Stay Canada-branded hotelsacquired a 121-room operating hotel from Crestwood Suites of Lakeland, LLC for gross proceeds$10.0 million. Other than ordinary components of 76.0 million Canadian dollars, or approximately $55.3 million. The carrying value of the hotels, includingprorated net working capital, and allocable goodwill, net of an impairment charge recorded during the three months ended March 31, 2017, was approximately 56.7 million Canadian dollars, or approximately $41.2 million, resulting in a gain on sale of approximately 17.3 million Canadian dollars, or approximately $12.6 million, prior to the evaluation of existing accumulated foreign currency translation loss. Due to the fact that the Company's Canadian subsidiaries liquidated 100% of their assets, approximately $14.5 million of accumulated foreign currency translation loss was recognizedno liabilities were assumed in the unaudited condensed consolidated statement of operations during the nine months ended September 30, 2017. This charge more than fully offset the Canadian subsidiaries' gain on sale, which resulted in a loss on salepurchase. The majority of the Canadian hotelspurchase price was allocated to building and improvements, with estimated useful lives ranging from five to 44 years.
5. PROPERTY AND EQUIPMENT
Net investment in property and equipment as of approximately $1.9June 30, 2020 and December 31, 2019, consists of the following (in thousands):
June 30,
2020		December 31, 2019
Hotel properties:
Land and site improvements (1)
$1,239,747  $1,228,231  
Building and improvements2,846,722  2,792,579  
Furniture, fixtures and equipment (2)
763,319  745,145  
Total hotel properties4,849,788  4,765,955  
Development in process (3)
63,611  70,864  
Corporate furniture, fixtures, equipment, software and other31,378  30,680  
Total cost4,944,777  4,867,499  
Less accumulated depreciation:
Hotel properties(1,435,357) (1,353,772) 
Corporate furniture, fixtures, equipment, software and other(22,080) (20,178) 
Total accumulated depreciation(1,457,437) (1,373,950) 
Property and equipment — net$3,487,340  $3,493,549  

(1)Includes finance lease asset of $3.2 million netas of closing costsJune 30, 2020 and adjustments, which is reportedDecember 31, 2019.
(2)Includes finance lease asset of $0.5 million and $0 as of June 30, 2020 and December 31, 2019, respectively.
(3)Includes finance lease asset of $0.8 million as of June 30, 2020 and December 31, 2019.

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As of June 30, 2020 and December 31, 2019, development in loss on saleprocess consisted of hotel properties during the nine months ended September 30, 201711 and 15 land parcels, respectively, that were in the accompanying unaudited condensed consolidated statementvarious phases of operations.
On May 16, 2017, theconstruction and/or development. The Company sold one U.S.-based hotel for gross proceedsexpects to delay commencement of $5.4 million. The carrying valueconstruction at 3 of this hotel, including net working capital and allocable goodwill, netthese locations as a result of an impairment charge recorded during 2016, was approximately $5.1 million, resulting in no gain or loss on sale, net of closing costs and adjustments.current market uncertainty.
During the three and ninesix months ended SeptemberJune 30, 20172020, and 2016, the four disposed hotel propertiesyear ended December 31, 2019, the following owned, newly constructed hotels were opened under the Extended Stay America brand:
Opening DateLocationNumber of HotelsNumber of
Rooms
December 2019Florida1124
December 2019Arizona1136
March 2020Florida1120
April 2020South Carolina1120
June 2020Georgia1124
June 2020Texas1124

During the three and six months ended June 30, 2020, these new hotels contributed total room and other hotel revenues, total operating expenses and (loss) income (loss) before income tax expense as follows (in thousands):
Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
Total room and other hotel revenues$1,551  $3,234  
Total operating expenses1,831  2,985  
(Loss) income before income tax expense(280) 249  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Total room and other hotel revenues$—
 $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.




5.PROPERTY AND EQUIPMENT
Net investment in property and equipment as of September 30, 2017 and December 31, 2016, consists of the following (in thousands):
 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

During the three and ninesix months ended SeptemberJune 30, 2017 and 2016,2020, the Company usingrecognized a $0.7 million impairment charge related to an undeveloped land parcel. The Company used Level 2 observable inputs, including a non-binding bid to sell the asset, and Level 3 unobservable inputs, assessed property and equipment for potential impairment. The Company recognized no impairment charges relatedincluding estimated transaction costs, to property and equipment fordetermine the three months ended September 30, 2017 and recognized approximately $20.4 million of impairment charges for the nine months ended September 30, 2017. The Company recognized an impairment charge of approximately $2.8 million for each ofincurred during the three and ninesix months ended SeptemberJune 30, 2016.2020. NaN impairment charges were recognized during the three and six months ended June 30, 2019.
Quantitative information with respect to unobservable inputs consists of internally developed cash flow models that include the following assumptions, among others: projections of revenues, expenses and hotel related cash flows based on assumed long-term growth rates, demand trends, expected future capital expenditures and estimated discount rates that range from 6% to 10% and terminal capitalization rates that range from 7% to 11%. These assumptions are based on the Company’s historical data and experience, the Company’s budgets, industry projections and micro and macro general economic condition projections.

6.INTANGIBLE ASSETS AND GOODWILL
6. INTANGIBLE ASSETS AND GOODWILL
The Company’s intangible assets and goodwill as of SeptemberJune 30, 20172020 and December 31, 2016,2019, consist of the following (dollars in(in thousands):
June 30, 2020
Gross
Carrying
Amount		Accumulated
Amortization		Net
Book Value
Definite-lived intangible assets—customer relationships$26,800  $(13,041) $13,759  
Definite-lived intangible assets—software licenses10,476  (1,380) 9,096  
Indefinite-lived intangible assets—trademarks10,163  —  10,163  
Total intangible assets47,439  (14,421) 33,018  
Goodwill45,192  —  45,192  
Total intangible assets and goodwill$92,631  $(14,421) $78,210  

14

 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—trademarks  9,933
 —
 9,933
Total intangible assets  36,733
 (9,355) 27,378
Goodwill  48,910
 —
 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—trademarks  9,933
 —
 9,933
Total intangible assets  36,733
 (8,350) 28,383
Goodwill  53,531
 —
 53,531
Total intangible assets and goodwill  $90,264
 $(8,350) $81,914
In conjunction with the sale of four hotels in May 2017, the Company wrote off approximately $4.6 million of goodwill, which is included in loss on sale of hotel properties in the accompanying unaudited consolidated statement of operations for the nine months ended September 30, 2017.
December 31, 2019
Gross
Carrying
Amount		Accumulated
Amortization		Net
Book Value
Definite-lived intangible assets—customer relationships$26,800  $(12,370) $14,430  
Definite-lived intangible assets—software licenses10,353  (763) 9,590  
Indefinite-lived intangible assets—trademarks10,163  —  10,163  
Total intangible assets47,316  (13,133) 34,183  
Goodwill45,192  —  45,192  
Total intangible assets and goodwill$92,508  $(13,133) $79,375  
The remaining weighted-average amortization period for definite-livedamortizing intangible assets is approximately 13.0nine years as of SeptemberJune 30, 2017.2020. Estimated future amortization expense for definite-livedamortizing intangible assets is as follows (in thousands):
Years Ending December 31,
Remainder of 2020$1,290  
20212,580  
20222,580  
20232,580  
20242,580  
20252,580  
Thereafter8,665  
Total$22,855  

7. DEBT
Years Ending December 31, 
Remainder of 2017$335
20181,340
20191,340
20201,340
20211,340
Thereafter11,750
Total$17,445


7.DEBT
Summary - The Company’s outstanding debt, net of unamortized debt discount,discounts and unamortized deferred financing costs, as of SeptemberJune 30, 20172020 and December 31, 2016,2019, consists of the following (dollars in thousands):
 
Stated
Amount(1)
 Carrying Amount Unamortized Deferred Financing Costs   Interest Rate   
Loan September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 Stated Interest Rate September 30, 2017 December 31, 2016 Maturity 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
         
 Stated
Amount		Carrying AmountUnamortized Deferred Financing Costs  
LoanJune 30, 2020December 31, 2019June 30, 2020December 31, 2019Stated Interest RateMaturity Date
Term loan facility
ESH REIT Term Facility$630,909  $624,359  
(1)
$627,368  
(1)
$8,356  $9,030  
LIBOR (2) + 2.00%
9/18/2026
(3)
Senior notes
2025 Notes1,300,000  1,293,644  
(4)
1,292,986  
(4)
13,643  15,055  5.25%5/1/2025
2027 Notes750,000  750,000  750,000  12,759  13,633  4.63%10/1/2027
Revolving credit facilities
ESH REIT Revolving Credit Facility350,000  350,000  —  2,339  
(5)
2,606  
(5)
LIBOR (2) + 2.00%
9/18/2024
Corporation Revolving Credit Facility50,000  49,765  —  628  
(5)
556  
(5)
LIBOR (2) + 2.25%
9/18/2024
Total$3,067,768  $2,670,354  $37,725  $40,880  

(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.
(2)ESH REIT is able to increase its borrowings under the 2016 ESH REIT Credit Facilities (as defined below) by an amount of up to $600.0 million, plus additional amounts, in each case subject to certain conditions.
(3)
(1)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.
(4)As of December 31, 2016, the stated interest rate of the 2016 Term Facility was LIBOR + 3.00% and included a LIBOR floor of 0.75%.
(5)$400.0 million of the 2016 Term Facility is subject to an interest rate swap at a fixed rate of 1.175% (see Note 8).
(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.
On March 1, 2017, ESH REIT entered into an amendment to the 2016 Term Facility (defined below) is presented net of an unamortized debt discount of $1.8 million and $2.0 million as of June 30, 2020 and December 31, 2019, respectively.
(2)As of June 30, 2020 and December 31, 2019, one-month LIBOR was 0.16% and 1.76%, respectively. As of June 30, 2020 and December 31, 2019, $150.0 million and $200.0 million, respectively, of the ESH REIT Term Facility was subject to an interest rate swap at a fixed rate of 1.175%.
(3)Amortizes in equal quarterly installments of $1.6 million. In addition to scheduled amortization, subject to certain exceptions, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required commencing with the lenders thereunder (such amendment,year ending December 31, 2020. Annual mandatory prepayments for a given fiscal year are due during the "Repricing Amendment"). The Repricing Amendment hadfirst quarter of the following impact onfiscal year.
(4)The 2025 Notes (defined below) are presented net of an unamortized discount of $6.4 million and $7.0 million as of June 30, 2020 and December 31, 2019, respectively.
(5)Unamortized deferred financing costs related to revolving credit facilities are included in other assets in the 2016 Term Facility: (i) decreased the interest rate spread on LIBOR based loans from 3.0% to 2.5%; (ii) decreased the interest rate spread on base rate loans from 2.0% to 1.5%; (iii) removed the floor of 0.75% on LIBOR based loans; (iv) removed the floor of 2.0% on base rate loans; (v) removed ranges on interest rate spreads for all loan types that were dependent upon ESH REIT’s credit rating; and (vi) extended the 1% prepayment penalty through September 1, 2017 (prepayments made after September 1, 2017 are not subject to a prepayment penalty, other than customary “breakage” costs).accompanying consolidated balance sheets.

15

ESH REIT Credit Facilities
On August 30, 2016, ESH REIT entered into aREIT’s credit agreement, as may be amended and supplemented from time to time, providingprovides for senior secured credit facilities (collectively, the "2016 ESH“ESH REIT Credit Facilities"Facilities”) consistingwhich consist of a $1,300.0$630.9 million senior secured term loan facility (the "2016“ESH REIT Term Facility"Facility”) and a $350.0 million senior secured revolving credit facility (the "2016 ESH“ESH REIT Revolving Credit Facility"Facility”). Subject to the satisfaction of certain criteria, borrowings under the 2016

ESH REIT Credit Facilities may be increased by an amount of up to $600.0 million, plus additional amounts, so long as, after giving effect to the incurrence of such incremental facility and the application of proceeds thereof, itsESH REIT’s pro-forma senior loan-to-value ratio is less than or equal to 45%.
Obligations under the 2016 ESH REIT Credit Facilities are guaranteed by certain existing and future material domestic subsidiaries ofTerm Facility—The ESH REIT other than those owning real property, subject to customary exceptions. Obligations under the 2016 ESH REIT Credit Facilities are secured, subject to certain exceptions, including an exception for real property, by a first-priority security interest in substantially all of the assets of ESH REIT and the guarantors.

The 2016 ESH REIT Credit Facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to incur additional debt, modify existing debt, create certain liens, pay dividends and distributions, make certain investments and other restricted payments, enter into affiliate transactions, amend or modify certain material operating leases and management agreements, sell assets or merge, consolidate or transfer all or substantially all of their assets. The 2016 ESH REIT Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and certain material operating leases and management agreements. If an event of default occurs, the administrative agent is entitled to take various actions, including the acceleration of amounts due under the 2016 ESH REIT Credit Facilities and additional actions that a secured creditor is permitted to take following a default. As of September 30, 2017, ESH REIT was in compliance with all covenants under the 2016 ESH REIT Credit Facilities.
2016 Term Facility—The 2016 Term Facility, as amended, bears interest at a rate equal to (i) LIBOR plus 2.50%1.75% for any period during which ESH REIT maintains a public corporate family rating better than or equal to BB (with a stable or better outlook) from S&P and Ba3 (with a stable or better outlook) from Moody’s (a “Level 1 Period”) or LIBOR plus 2.00% for any period other than a Level 1 Period; or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50% or (C) the one-month adjusted LIBOR rate plus 1.00%), plus 1.50%. The 2016 Term Facility amortizes in equal quarterly installments in annual amounts of 1.0% of the principal amount outstanding as of the Repricing Amendment,0.75% during a Level 1 Period or approximately $13.0 million, with the remaining balance payable at maturity. In addition to scheduled amortization, subject to certain exceptions, mandatory prepayments of up to 50% of annual Excess Cash Flow, as defined, may be required based on ESH REIT's Consolidated Leverage Ratio, each as defined. Annual mandatory prepayments are due during the first quarter of the following year. The 2016 Term Facility matures on August 30, 2023.
1.00% for any period other than a Level 1 Period. ESH REIT has the option to voluntarily prepay outstanding loans under the 2016ESH REIT Term Facility at any time upon three business days’ prior written notice for LIBOR loans or on one business day’s prior written notice for base rate loans. In addition to customary "breakage" costs with respect to LIBOR loans, amounts refinanced, substituted or replaced by indebtedness which has a lower all-in yield than the all-in yield under the 2016 Term Facility on or prior to September 1, 2017 (other than as a result of a transformative transaction) are subject to a prepayment penalty equal to 1.00% of the aggregate principal amount refinanced, substituted or replaced. Prepayments made after September 1, 2017 are not subject to a prepaymentwithout penalty.

2016 ESH REIT Revolving Credit Facility—The 2016Borrowings under the ESH REIT Revolving Credit Facility provides for the issuance of up to $50.0 million of letters of credit. Borrowings under the facility bear interest at a rate equal to (i) LIBOR plus a spread that ranges from 2.25%1.50% to 2.75%2.00% based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined, or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50%, or (C) the one-month adjusted LIBOR rate plus 1.00%) plus a spread that ranges from 1.25%0.50% to 1.75%1.00% based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined. There is no scheduled amortization under the 2016 ESH REIT Revolving Credit Facility and the facility matures on August 30, 2021.

In addition to paying interest on outstanding principal, ESH REIT incurs a fee of 0.35%0.30% or 0.175% on the unutilized revolver balance, based on the amount outstanding under the facility.balance. ESH REIT is also required to pay customary letter of credit fees and agency fees. The ESH REIT Revolving Credit Facility provides for the issuance of up to $50.0 million of letters of credit. As of SeptemberJune 30, 2017,2020, ESH REIT had no0 letters of credit outstanding and no available borrowing capacity under the facility, an outstanding balance of $0 andfacility.
In March 2020, ESH REIT borrowed the full available borrowing capacity of $350.0 million.

million under the ESH REIT Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in business markets resulting from the COVID-19 pandemic. These proceeds may in the future be used for working capital, general corporate or other purposes permitted under the agreement.
The 2016 ESH REIT Revolving Credit Facility is subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45% when the aggregate principal amount of borrowings and letters of credit under the 2016 ESH REIT Revolving Credit Facility, excluding up to $30.0 million of letters of credit, is equal to or greater than 25%35% of the aggregate available principal amount of the 2016 ESH REIT Revolving Credit Facility on the applicable fiscal quarter end date.
ESH REIT Senior2025 Notes Due 2025
In May 2015 and March 2016, ESH REIT issued $500.0 million and $800.0 million, respectively, of its 5.25% senior notes due in May 2025 (together with the $800.0 million of additional notes discussed below, the(the “2025 Notes”) under an indenture (the “Indenture”) with Deutsche Bank Trust Company

Americas, as trustee, at 100% of par value in a private placementplacements pursuant to Rule 144A of the Securities Act ("Rule 144A"). In March 2016, ESH REIT issued an additional $800.0 million of the 2025 Notes under the Indenture at 98.5% of par value in a private placement pursuant to Rule 144A. The 2025 Notes mature on May 1, 2025 and bear interest at a fixed rate of 5.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year.
The 2025 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the 2016 ESH REIT Credit Facilities. The 2025 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2025 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
1933, as amended. ESH REIT may redeem the 2025 Notes at any time on or after May 1, 2020, in whole or in part, at a redemption price equal to 102.625% of the principal amount, declining annually to 100% of the principal amount from May 1, 2023 and thereafter, plus accrued and unpaid interest. Prior to May 1, 2020, ESH REIT may redeem the 2025 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a "make-whole"“make-whole” premium, as defined, plus accrued and unpaid interest. Upon a Change of Control, as defined, holders of the 2025 Notes have the right to require ESH REIT to redeem the 2025 Notes at 101% of the principal amount, plus accrued and unpaid interest.
16

ESH REIT 2027 Notes
In September 2019, ESH REIT issued $750.0 million of its 4.625% senior notes due in 2027 (the “2027 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, at a price equal to 100% of par value in a private placement pursuant to Rule 144A of the Indenture,Securities Act of 1933, as amended. ESH REIT may redeem the 2027 Notes at any time on or after October 1, 2022, in whole or in part, at a redemption price equal to 102.313% of the principal amount, declining annually to 100% of the principal amount from October 1, 2024 and thereafter, plus accrued and unpaid interest. Prior to MayOctober 1, 2018,2022, ESH REIT may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium, as defined, plus accrued and unpaid interest. Prior to October 1, 2022, subject to certain conditions, ESH REIT may redeem up to 35% of the aggregate principal amount of the 20252027 Notes at a redemption price equal to 105.250%101% of the aggregate principal amount, thereof, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings, provided 65% of the original amount of the principal remains outstanding after the occurrence of each such redemption. Upon a Change of Control, as defined, holders of the 20252027 Notes have the right to require ESH REIT to redeem the 20252027 Notes at 101% of the principal amount, plus accrued and unpaid interest.
The Indenture contains a number of customary covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to incur additional debt, create certain liens, pay dividends or distributions, make certain investments and other restricted payments, enter into affiliate transactions, sell assets or merge, consolidate or transfer all or substantially all of their assets. The Indenture also contains certain customary events of default, including, but not limited to, cross-defaults to certain other indebtedness. If an event of default occurs, the holders of the Notes and the Trustee are entitled to take various actions, including declaring the 2025 Notes immediately due and payable. As of September 30, 2017, ESH REIT was in compliance with all covenants set forth in the Indenture.
Corporation Revolving Credit Facility
On August 30, 2016, the Corporation entered into aThe Corporation’s revolving credit facility, as may be amended and supplemented from time to time (the "2016 Corporation“Corporation Revolving Credit Facility"Facility”) of $50.0 million. The facility, provides for the issuance of up to $50.0 million of letters of credit as well as borrowing on same day notice, referred to as swingline loans, in an amount of up to $20.0 million. Borrowings under the facilityCorporation Revolving Credit Facility bear interest at a rate equal to (i) LIBOR plus 3.00%2.25% or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50% or (C) the one-month adjusted LIBOR rate plus 1.00%) plus 2.00%1.25%. There is no scheduled amortization under the 2016 Corporation Revolving Credit Facility and the facility matures on August 30, 2021.
In addition to paying interest on outstanding principal, the Corporation incurs a fee of 0.35%0.30% or 0.175% on the unutilized revolver balance, based on the amount outstanding under the facility. The Corporation is also required to pay customary letter of credit fees and agency fees. As of SeptemberJune 30, 2017,2020, the Corporation had one1 letter of credit outstanding under this facility of $0.7$0.2 million an outstanding balance drawn of $0 and 0 available borrowing capacity availableunder the facility.
In March 2020, the Company borrowed $49.8 million under the Corporation Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of $49.3 million.uncertainty in business markets resulting from the COVID-19 pandemic. The proceeds may in the future be used for working capital, general corporate or other purposes permitted under the agreement.

Obligations under the 2016 Corporation Revolving Credit Facility are guaranteed by certain existing and future material domestic subsidiaries of the Corporation, excluding ESH REIT and its subsidiaries and subject to customary exceptions. The facility is secured, subject to certain exceptions, by a first-priorityfirst priority security interest in substantially all of the assets of the Corporation and the guarantors.

If obligations are outstanding under the facility during any fiscal quarter, the 2016 Corporation Revolving Credit Facility requires that the Consolidated Leverage Ratio, as defined, calculated as of the end of such fiscal quarter for any consecutive four quarter period, be less than or equal to 8.75 to 1.00.1.00 (the "Leverage Covenant," subject to the Four Quarter Suspension Period, as defined below). The facility is also subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45% when the aggregate principal amount of borrowings and letters of credit under the 2016 Corporation Revolving Credit Facility, excluding up to $30.0 million of letters of credit, is equal to or greater than 25% of the aggregate available principal amount of the 2016 Corporation Revolving Credit Facility on the applicable fiscal quarter end date.


The 2016In May 2020, the Company entered into an amendment to the Corporation Revolving Credit Facility containsand obtained a suspension of the Leverage Covenant from the beginning of the second quarter of 2020 through the end of the first quarter of 2021 (the “Four Quarter Suspension Period”). For the second quarter of 2021 through the fourth quarter of 2021, the leverage covenant calculation has been modified to use annualized EBITDA, as opposed to trailing twelve-month EBITDA. Additionally, the amendment provides for the Corporation to borrow up to $150.0 million from ESH REIT through an intercompany loan facility. Throughout the Four Quarter Suspension Period, the Company has agreed to maintain minimum liquidity of $150.0 million and to limit share repurchases and dividend payments made by the Corporation.
17

Covenants
The ESH REIT Credit Facilities, the 2027 Notes, the 2025 Notes, the Corporation Revolving Credit Facility and certain intercompany loan facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, limit the Corporation’s ability and the ability of its subsidiaries to incur additional debt, modify existing debt, create certain liens, pay dividends or distributions, make certain restricted payments, enter into affiliate

transactions, amend or modify certain material operating leases and management agreements, merge, consolidate or transfer all or substantially all of its assets. The 2016 Corporation Revolving Credit Facility also contains certain customary affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and certain material operating leases. If an event of default occurs, the administrative agent is entitled to take various actions, including the acceleration of amounts due under the facility and additional actions that a secured creditor is permitted to take following a default. As of September 30, 2017, the Corporation was in compliance with all covenants under the 2016 Corporation Revolving Credit Facility.
Unsecured Intercompany Facility
On August 30, 2016, ESH REIT, as borrower, and the Corporation, as lender, entered into an unsecured intercompany credit facility (the "Unsecured Intercompany Facility"). As of September 30, 2017, the amount outstanding under the facility totaled $50.0 million. Subject to certain conditions, the principal amount of the Unsecured Intercompany Facility may be increased up to an amount that shall not exceed the greater of (i) $300.0 million and (ii) an unlimited amount so long as the incremental loan-to-value ratio, determined on a pro-forma basis as of the last day of the most recently ended test period, as if any incremental loans available under such incremental commitments had been outstanding on the last day of such period, and, in each case, without netting the cash proceeds of any such incremental loans, does not exceed 5.0%. Loans under the facility bear interest at 5.00% per annum. There is no scheduled amortization under the facility and the facility matures on August 30, 2023. ESH REIT has the option to voluntarily prepay outstanding loans at any time upon one business day’s prior written notice.

The Unsecured Intercompany Facility contains a number of restrictive covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of itstheir respective subsidiaries to incur additional debt, modify existing debt, createengage in certain liens, pay dividends or distributions, maketransactions. In addition, the ESH REIT Revolving Credit Facility and the Corporation Revolving Credit Facility contain financial covenants that, subject to certain investmentsconditions, require compliance with certain senior loan-to-value and other restricted payments, enter into affiliate transactions, amend or modify certain material operating leasesconsolidated leverage ratios. The agreements governing the Corporation’s and management agreements, sell assets or merge, consolidate or transfer all or substantially all of their assets. The facility containsESH REIT’s indebtedness also contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and, in the case of the ESH REIT Credit Facilities and certain intercompany loan facilities, certain material operating leases and management agreements. If an eventAs of default occurs,June 30, 2020, the Corporation is entitled to take various actions, including the acceleration of amounts due under the facility and all other actions that a creditor is permitted to take following a default. As of September 30, 2017, ESH REIT waswere in compliance with all covenants under their respective debt agreements.

The Company’s continued compliance with these covenants could be impacted by current or future economic conditions associated with the Unsecured Intercompany Facility.COVID-19 pandemic. The Company's failure to maintain compliance with its debt covenants or to pay debt obligations as they become due would give rise to default under one or more agreements governing the Company's indebtedness, and could entitle the lenders under the defaulted agreements to accelerate the maturity of the amounts thereunder, which could raise substantial doubt about the Company's ability to continue as a going concern. The Company may seek additional covenant waivers or amendments, though there is no certainty that it would be successful in such efforts.
Future Maturities of DebtInterest Expense, net—The future maturitiescomponents of debt as of Septembernet interest expense during the three and six months ended June 30, 2017,2020 and 2019, are as follows (in thousands):
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
 
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Contractual interest, net (1)
$31,753  $28,765  $63,079  $57,482  
Amortization of deferred financing costs and debt discount2,077  1,996  4,129  3,993  
Other costs (2)
59  405  352  806  
Interest income(268) (1,400) (1,254) (2,911) 
Total$33,621  $29,766  $66,306  $59,370  
______________________
(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.
Fair Value(1)Includes dividends on shares of Debt—Asmandatorily redeemable Corporation preferred stock. Net of September 30, 2017 and December 31, 2016, the estimated fair valuecapitalized interest of the Company's debt was approximately $2.6 billion and $2.7 billion, respectively. Estimated fair values are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on the Company's debt (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available.

8.DERIVATIVE INSTRUMENTS
The Company from time to time uses derivative instruments to manage its exposure to interest rate, foreign currency exchange rate and commodity price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes in interest rates, foreign currency exchange rates and commodity prices. The Company’s derivatives expose it to credit risk to the extent that counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.
In September 2016, ESH REIT entered into a floating-to-fixed interest rate swap at a fixed rate of 1.175% and a floating rate of one-month LIBOR, subject to a LIBOR floor of 0.75%, to manage its exposure to interest rate risk on a portion of its variable rate debt. In February 2017, ESH REIT executed an amendment to its swap agreement, the impact of which was to remove the LIBOR floor on floating rate cash flows. The notional amount of the interest rate swap as of September 30, 2017 was $400.0 million. On March 30, 2018, the notional amount decreases to $350.0$0.7 million, $0.4 million, $1.6 million and the notional amount continues to decrease by an additional $50.0$0.8 million, every six months until the swap's maturity in September 2021.respectively.
From September 2016 through the February 2017 amendment to ESH REIT's swap agreement, the swap was designated as an effective cash flow hedge(2)Includes interest expense on finance leases (see Note 12) and changes in fair value were recognized through accumulated other comprehensive income. Concurrent with the February 2017 swap amendment and through April 2017, the swap's designation as a cash flow hedge was reversed and changes in fair value were recognized in earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. In April 2017, ESH REIT re-designated the swap as an effective cash flow hedge. Subsequent to April 2017, the effective portion of changes in fair value are recognized through accumulated other comprehensive income and the ineffective portion is recognized in other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. Prior changes recognized through accumulated other comprehensive income are amortized over the remaining life of the swap through earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. As of September 30, 2017, approximately $1.1 million is expected to be recognized through earnings over the following twelve months.unused facility fees.
The table below presents the amounts and classification on the Company's financial statements related to the interest rate swap (in thousands):
 Other AssetsAccumulated other comprehensive income, net of tax Other non-operating expense (income) 
Interest
Expense
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.
9.MANDATORILY REDEEMABLE PREFERRED STOCK
Mandatorily Redeemable Preferred Stock—The Corporation has authorized 350.0 million shares of preferred stock, $0.01 par value, $0.01 per share, of which 7,133708 and 21,2027,130 shares of mandatorily redeemable voting preferred stock were issued and outstanding as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Dividends on these mandatorily redeemable voting preferred shares are payable quarterly in arrears at a rate of 8.0% per year. With respect to dividend, distribution and liquidation rights, the 8.0% voting preferred stock ranks senior to the Corporation’s common stock. Holders of the 8.0% voting preferred stock are generally entitled to one vote for each share and will vote together with the Corporation common stock as a single class on all matters that the Corporation’s common shareholders are entitled to vote upon. On or after November 15, 2018, a holder of the 8.0% voting preferred stock hashave the right to require the

Corporation to redeem in cash the 8.0% voting preferred stock at $1,000 per share plus any accumulated unpaid dividends. During the three and six months ended June 30, 2020, 6,422 shares of the 8.0% mandatorily redeemable voting preferred stock were redeemed for $6.4 million. On November 15, 2020, the Corporation shall mandatorily redeem all of the outstanding 8.0% voting preferred stock at $1,000 per share plus any accumulated unpaid dividends.
Due to the fact that the outstanding 8.0% voting preferred stock is mandatorily redeemable by the Corporation, it is classified as a liability on the accompanying unaudited condensed consolidated balance sheets. Dividends on these preferred shares are classified as net interest expense on the accompanying unaudited condensed consolidated statements of operations.
Fair Value of Debt and Mandatorily Redeemable Preferred Stock—As of SeptemberJune 30, 20172020 and December 31, 2016,2019, the estimated fair value of the 8.0% voting preferred stockCompany’s debt was approximately $7.1 million$3.0 billion and $21.3 million, respectively. The$2.7 billion, respectively, and the estimated fair value of the Corporation’s 8.0% votingmandatorily redeemable preferred stock iswas $0.7 million and $7.1 million, respectively. Estimated fair values are determined by comparing current borrowing rates and risk spreads offered in the market (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available, to the stated interest rates and spreads (Level 2on the Company’s debt and the Corporation’s 8.0% mandatorily redeemable preferred stock. As of June 30, 2020 and December 31, 2019, the estimated fair value measures).of each of the Corporation and ESH REIT revolving credit facilities is equal to its carrying value due to its short-term nature and frequent settlement.
8. DERIVATIVE INSTRUMENTS
ESH REIT is a counterparty to a floating-to-fixed interest rate swap at a fixed rate of 1.175% and a floating rate of one-month LIBOR to manage its exposure to interest rate risk on a portion of the ESH REIT Term Facility. The notional amount of
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the interest rate swap as of June 30, 2020 was $150.0 million. The notional amount decreases by an additional $50.0 million every six months until the swap’s maturity in September 2021.
For the three and six months ended June 30, 2020, the Company paid interest of $0.3 million and received proceeds of less than $0.1 million, respectively, and for the three and six months ended June 30, 2019, the Company received proceeds of $0.8 million and $1.8 million, respectively, that offset interest expense. As of June 30, 2020, $1.0 million of interest expense is expected to be recognized over the following twelve months.
The table below presents the amounts and classification of the interest rate swap on the Company’s condensed consolidated financial statements (in thousands):
(Accrued liabilities) other assetsAccumulated other comprehensive (loss) income, net of taxInterest expense (income), net
As of June 30, 2020$(1,170) $(996) 
(1)
As of December 31, 2019$831  $706  
(2)
For the three months ended June 30, 2020$250  
For the three months ended June 30, 2019$(821) 
For the six months ended June 30, 2020$(7) 
For the six months ended June 30, 2019$(1,797) 

(1)Changes during the six months ended June 30, 2020, on a pre-tax basis, consisted of changes in fair value of $(2.0) million.
(2)Changes during the year ended December 31, 2019, on a pre-tax basis, consisted of changes in fair value of $(5.0) million.
9. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table disaggregates room revenues from owned hotels by booking source for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Property direct$59,830  $75,426  
(2)
$119,854  $145,255  
(2)
Central call center70,840  81,089  
(2)
148,031  149,197  
(2)
Proprietary website46,643  60,257  
(2)
99,582  110,655  
(2)
Third-party intermediaries39,851  83,744  97,671  152,841  
Travel agency global distribution systems2,687  11,098  9,177  20,712  
Total room revenues from owned hotels (1)
$219,851  $311,614  $474,315  $578,660  

(1)In addition to room revenues, the Company’s owned hotels earned $6.3 million and $13.1 million of other hotel revenues during the three and six months ended June 30, 2020, respectively, and $6.1 million and $11.4 million of other hotel revenues during the three and six months ended June 30, 2019.
(2)As a result of the correction of a classification error, for the three months ended June 30, 2019, $4.6 million of room revenues that were previously classified as revenues generated from property direct have been reclassified and reported as $3.0 million of revenues generated from central call center and $1.6 million of revenues generated from proprietary website. For the six months ended June 30, 2019, $8.3 million of room revenues that were previously classified as revenues generated from property direct have been reclassified and reported as $5.6 million of revenues generated from central call center and $2.7 million of revenues generated from proprietary website. The Company concluded that the effect of the error is immaterial to previously issued financial statements but has made the corrections for consistent presentation.
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The following table disaggregates room revenues from owned hotels by length of guest stay for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
1-6 nights$60,491  $121,052  $145,085  $222,476  
7-29 nights44,170  63,867  99,001  118,967  
30+ nights115,190  126,695  230,229  237,217  
Total room revenues from owned hotels (1)
$219,851  $311,614  $474,315  $578,660  

(1)In addition to room revenues, the Company’s owned hotels earned $6.3 million and $13.1 million of other hotel revenues during the three and six months ended June 30, 2020, respectively, and $6.1 million and $11.4 million of other hotel revenues during the three and six months ended June 30, 2019.
The following table disaggregates revenues from franchised and managed hotels for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Management fees$208  $367  $443  $660  
Franchise fees1,010  1,080  2,054  2,012  
Indirect reimbursements (system service fees)1,157  1,400  2,347  2,584  
Direct reimbursements2,288  3,126  4,888  6,037  
Total revenues from franchised and managed hotels$4,663  $5,973  $9,732  $11,293  
Outstanding Contract Liabilities
Contract liabilities relate to advance deposits with respect to owned hotels and, with respect to franchised hotels, advance consideration received, such as initial franchise fees paid when a franchise agreement is executed and certain system implementation fees paid at the time of installation. Contract liabilities are included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets. The following table presents outstanding contract liabilities as of June 30, 2020 and January 1, 2020, and the amount of outstanding January 1, 2020 contract liabilities recognized as revenue during the three and six months ended June 30, 2020 (in thousands):
10.INCOME TAXESOutstanding Contract LiabilitiesOutstanding Contract Liabilities as of January 1, 2020 Recognized as Revenue
As of June 30, 2020$19,283 
As of January 1, 202016,231 
For the three months ended June 30, 2020$559 
For the six months ended June 30, 2020$10,732 
Performance Obligations
As of June 30, 2020, $14.0 million of outstanding contract liabilities related to owned hotels and $5.3 million related to franchised hotels. The Company does not estimate revenues expected to be recognized related to unsatisfied performance obligations for royalty fees, system service fees or management fees, as they are considered either sales-based fees or allocated to wholly unsatisfied performance obligations in a series. Performance obligations related to owned hotels are expected to be satisfied within less than one year. Performance obligations related to third-party owned (i.e., franchised) hotels are expected to be satisfied over the term of the respective franchise agreements, which are typically 20 years.
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10. SEGMENTS
The Company’s operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by its chief operating decision maker to assess performance and make decisions regarding the allocation of resources. The Company’s operating and reportable segments are defined as follows:

•Owned Hotels—Earnings are derived from the operation of Company-owned hotel properties and include room and other hotel revenues.
•Franchise and management—Earnings are derived from fees under franchise and management agreements with third parties. These contracts provide the Company the ability to earn compensation for licensing the Extended Stay America brand name, providing access to shared system-wide platforms and/or management services.
The performance of the Company’s operating segments is evaluated primarily on income from operations. Selected financial data is provided below (in thousands):
Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Revenues:
Owned hotels$226,170  $317,684  $487,402  $590,033  
Franchise and management (1)
1,897  2,400  3,959  4,442  
Total segment revenues228,067  320,084  491,361  594,475  
Corporate and other (2)
18,636  19,704  38,628  39,218  
Other revenues from franchised and managed properties (3)
3,445  4,526  7,235  8,621  
Intersegment eliminations (4)
(19,314) (20,657) (40,089) (40,988) 
Total$230,834  $323,657  $497,135  $601,326  
Income (loss) from operations:
Owned hotels$25,311  $104,653  $73,862  $174,348  
Franchise and management (1)
1,897  2,400  3,959  4,442  
Total segment income from operations27,208  107,053  77,821  178,790  
Corporate and other (2)
(8,073) (6,132) (15,926) (13,364) 
Other expenses from franchised and managed properties, net (3)
(638) (470) (1,055) (1,022) 
Total$18,497  $100,451  $60,840  $164,404  

(1)Includes intellectual property fees charged to the owned hotels segment of $0.7 million and $1.5 million for the three and six months ended June 30, 2020, respectively, and $1.0 million and $1.8 million for the three and six months ended June 30, 2019, respectively, that are eliminated in the condensed consolidated statements of operations.
(2)Includes revenues generated and operating expenses incurred in connection with the overall support of owned, franchised and managed hotels and related operations. Corporate and other revenues are comprised of management fees earned by and cost reimbursements charged to the owned hotels segment that are eliminated in the condensed consolidated statements of operations.
(3)Includes direct reimbursement of specific costs incurred under franchise and management agreements that the Company is reimbursed for on a dollar-for-dollar basis as well as indirect reimbursement of certain costs incurred associated with the Company’s shared platform (i.e., system services, see Note 2).
(4)Includes management fees, intellectual property fees and other cost reimbursements charged to the owned hotels segment that are eliminated in the condensed consolidated statements of operations.
Total assets for each of the Company’s operating segments are provided below (in thousands):
June 30, 2020December 31, 2019
Assets:
Owned hotels$3,732,706  $3,661,609  
Franchise and management13,369  14,576  
Total segment assets3,746,075  3,676,185  
Corporate and other644,382  397,568  
Intersegment eliminations(42,218) (43,157) 
Total$4,348,239  $4,030,596  
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Total capital expenditures for each of the Company's operating segments are provided below (in thousands):
Six Months Ended
June 30,
20202019
Capital Expenditures:
Owned hotels$104,658  $112,294  
Corporate and other651  628  
Total$105,309  $112,922  

11. INCOME TAXES
The Corporation’s taxable income includes the taxable income of its wholly-owned subsidiaries and distribution income related to its ownership of approximately 57%59% of ESH REIT.
ESH REIT has elected to be taxed as and expects to continue to qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"“Code”). A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding net capital gain, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and generally would be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.
ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Accordingly,Even in qualifying as a REIT, ESH REIT expectsmay be subject to distribute approximately 100% of its taxablestate and local taxes in certain jurisdictions, and is subject to federal income for the foreseeable future. and excise taxes on undistributed income.
The Company recorded a provisionbenefit for federal, state and foreign income taxes of approximately $20.3$6.1 million, an effective tax rate of 40.8%, for the three months ended SeptemberJune 30, 2017, an effective rate of approximately 23.5%,2020, as compared withto a provision of approximately $15.9$11.2 million, an effective tax rate of 15.8%, for the three months ended SeptemberJune 30, 2016, an effective rate of approximately 21.8%.2019. The Company recorded a provisionbenefit for federal, state and foreign income taxes of approximately $40.7$4.9 million, an effective tax rate of 84.2%, for the ninesix months ended SeptemberJune 30, 2017, an effective rate of approximately 23.6%,2020, as compared withto a provision of approximately $26.2$17.3 million, an effective tax rate of 16.4%, for the ninesix months ended SeptemberJune 30, 2016, an effective rate of approximately 16.4%.2019. The Company’sCompany's effective rate differs from the federal statutory rate of 35%21% primarily due to ESH REIT’sREIT's status as a REIT under the provisions of the Code. DuringCode and, for the three and six months ended SeptemberJune 30, 2016,2020, the Company's effective rate was impacted by a benefitpassage of approximately $0.8 million recognized for the reversal of a net deferredCoronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides the Company the ability to carry back and utilize projected federal tax liabilitylosses to reflect the Corporation's anticipated receipt of future ESH REIT nontaxable distributions; in addition to discrete provision to return adjustments of approximately $2.0 million recognized upon the filing of an income tax return. During the nine months ended September 30, 2016, the Company's effective rate was impacted by a benefit of approximately $8.5 million recognized for the reversal of a net deferred tax liability to reflect the Corporation's anticipated receipt of future ESH REIT nontaxable distributions. During the nine months ended September 30, 2016 the Company's effectivehigher tax rate was further impacted by a benefityears.
As of approximately $1.8 million with respect toJune 30, 2020, the reversal of net deferredCompany has not completed its accounting for all tax liabilities whicheffects related to the previously estimated 5%enactment of taxablethe CARES Act, including the ability to carry back losses to higher federal marginal rate tax years. The Company is still analyzing the CARES Act and refining its calculations, including the CARES Act's impact on state income expectedtaxes, all of which are complex and subject to be retained under ESH REIT'scontinued interpretation. The Company expects to complete its analysis prior 95% distribution policy, which was changed during the three months ended March 31, 2016.to year-end 2020.
The Company’sCompany's income tax returns for the years 20132016 to present are subject to examination by the Internal Revenue Service ("IRS") and other taxing authorities.

11.RELATED PARTY TRANSACTIONS
Investment funds and affiliates As of Paulson & Co. Inc.,June 30, 2020, a Former Sponsor, held 7,036 shares subsidiary of ESH REIT was under examination by the Canadian Revenue Agency for the tax years 2014 through 2017. As the examination is still in process, the timing of the Corporation's outstanding mandatorily redeemable preferred stockresolution and any payments that may be required cannot be determined at this time. The Company believes that, to the extent a liability may exist, it is appropriately reserved as of September June 30, 2017. Investment funds and affiliates of the Former Sponsors held 21,105 shares of the Corporation's outstanding mandatorily redeemable preferred stock as of December 31,2020.

2016. During the nine months ended September 30, 2017, the Corporation repurchased 14,069 preferred shares from funds or affiliates of Centerbridge Partners, L.P. and The Blackstone Group L.P. at par value, or approximately $14.1 million.12. COMMITMENTS AND CONTINGENCIES
As of September 30, 2017 and December 31, 2016, the outstanding balance owed by 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 by ESH REIT to the Corporation related to this facility eliminate in consolidation (see Note 7).
During the nine months ended September 30, 2017, the Corporation and ESH REIT repurchased and retired approximately 2.0 million Paired Shares from the Former Sponsors for approximately $21.4 million and $12.2 million, respectively. These Paired Shares were purchased in connection with the secondary offerings consummated in March, May and June of 2017 and pursuant to, and counted toward, the combined Paired Share repurchase program (see Note 1).
In March 2016, in connection with ESH REIT's $800.0 million issuance of its 2025 Notes discussed in Note 7, an affiliate of one of the Former Sponsors acted as an initial purchaser and purchased $24.0 million of the 2025 Notes. As such, the affiliate of one of the Former Sponsors earned approximately $0.4 million in fees related to the transaction during the nine months ended September 30, 2016.
12.COMMITMENTS AND CONTINGENCIES
Lease Commitments—The Company is a tenant under long-term ground leases at four5 of its hotel properties. The initial termsNaN of thethese leases are operating leases and 2 are finance leases. The ground lease agreements terminate at various dates between 20212023 and 2096 and three leasesseveral of the agreements include multiple renewal options for generally five or 10ten year periods. The Company is also a tenant under an officeoperating lease for its corporate office. The initial term of the office, leasewhich terminates in August 2021 and includes renewal options for two additional terms2 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 five years each.
Rent expense on groundrelated right-of-use assets and lease liabilities. Payments associated with the option to extend the corporate office leases is recognized on a straight-line basis and was approximately $0.8 million for eachlease are not included in the measurement of the three months ended Septemberright-of-use asset and lease liability, as the associated payments cannot be reasonably estimated. Additionally, as of June 30, 2017 and 2016, and approximately $2.4 million for each of2020, the nine months ended September 30, 2017 and 2016. GroundCompany leased certain technology equipment located at its hotel sites under finance leases.
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Operating lease expense iscosts related to ground leases are included in hotel operating expenses, andwhile operating lease costs related to the Company’s office lease expense isare included in general and administrative expenses, in the accompanying unaudited condensed consolidated statements of operations.
Other Commitments—The Company has a commitment to make quarterly payments in lieu of taxes to the owner of the land on which one of its properties is located. The initial term of the agreement terminates in 2031. The cost related to this commitment was approximately $0.1 million for each of the three months ended September 30, 2017 and 2016, and approximately $0.2 million for each of the nine months ended September 30, 2017 and 2016, and is Finance lease interest costs are included in hotel operating expensesinterest expense, net in the accompanying unaudited condensed consolidated statements of operations.operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the condensed consolidated balance sheets (see Note 5). No amortization costs were incurred during the three and six months ended June 30, 2020 and 2019 for finance leases pertaining to land or land in development. The Company has no variable lease costs or short-term leases.
LettersFor the three and six months ended June 30, 2020 and 2019, the components of the Company’s total lease costs are as follows (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Operating lease costs$769  $770  $1,538  $1,538  
Finance lease costs80  61  146  122  
Total lease costs$849  $831  $1,684  $1,660  
The Company’s right-of-use assets and lease liabilities are as follows (in thousands):
June 30, 2020December 31, 2019
Right-of-use assets:
Operating(1)
$3,719  $4,863  
Finance(2)
4,415  3,979  
Lease liabilities:
Operating(3)
11,545  12,590  
Finance3,767  3,379  

(1)Included in other assets on the accompanying condensed consolidated balance sheets.
(2)Included in property and equipment, net on the accompanying condensed consolidated balance sheets.
(3)Included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.
Maturities of lease liabilities as of June 30, 2020, are as follows (in thousands):
Years Ending December 31,Operating LeasesFinance Leases
Remainder of 2020$1,460  $307  
20212,220  738  
2022806  397  
2023552  400  
2024503  402  
2025503  429  
Thereafter77,091  2,671  
Total$83,135  $5,344  
Total discounted lease liability$11,545  $3,767  
Difference between undiscounted cash flows and discounted cash flows$71,590  $1,577  
Weighted-average remaining lease term47 years11 years
Weighted-average discount rate6.4 %6.7 %
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 June 30, 2020, the Company does not have any material leases that have not yet commenced.
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Letter of Credit—As of SeptemberJune 30, 2017,2020, the Company had one1 outstanding letter of credit, issued by the Corporation, for $0.7$0.2 million, which is collateralized by the 2016 Corporation Revolving Credit Facility.
Legal Contingencies—As of June 30, 2020, 6 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 three months ended June 30, 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 condensed 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 the one lawsuit described below, the parties reached a tentative settlement agreement in January 2020, which is subject to certain conditions, including court approval. During the three months ended December 31, 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 condensed 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 condensed consolidated financial statements, results of operations or liquidity in a future period. The Company believes that it has meritorious defenses and is 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 claimsadditional litigation and litigation,claims, individually or in the aggregate, will not have a material adverse effect on its business or unauditedthe Company's condensed consolidated financial statements.statements, its business, results of operations and financial condition.
13.EQUITY-BASED COMPENSATION
13. EQUITY-BASED COMPENSATION
The Corporation and ESH REIT each maintain a long-term incentive plan (“LTIP”), as amended and restated in 2015, approved by their shareholders. Under the LTIPs,each LTIP, the Corporation and ESH REIT may issue to eligible employees or directors restricted stock awards (“RSAs”), restricted stock units (“RSUs”) or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIPLTIPs has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of SeptemberJune 30, 2017, approximately 3.82020, 4.2 million Paired Shares were available for future issuance under the LTIPs.
Equity-based compensation expense is recognized by amortizing the grant-date fair value of the equity-based awards, less estimated forfeitures, on a straight-line basis over the requisite service period of each award. A portion of the grant-date fair

value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Equity-based compensation expense, was approximately $2.7 million and $3.0 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $9.0 million and $8.6 million for the nine months ended September 30, 2017 and 2016, respectively, andwhich is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.operations, was $1.9 million and $3.0 million for the three and six months ended June 30, 2020, respectively, and $2.1 million and $4.3 million for the three and six months ended June 30, 2019.
As of SeptemberJune 30, 2017,2020, unrecognized compensation expense related to outstanding equity-based awards and the related weighted-average period over which it is expected to be recognized subsequent to SeptemberJune 30, 2017,2020, is presented in the following table. Total unrecognized compensation expense will be adjusted for actual forfeitures.forfeitures and the achievement of certain market-based conditions.
24

Unrecognized Compensation Expense Related to Outstanding Awards (in thousands)Remaining Weighted-Average Amortization Period (in years)
RSUs with service vesting conditionsRSUs with service vesting conditions$8,080  1.6
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
1.1RSUs with market vesting conditions3,471  2.2
Total unrecognized compensation expense$13,086
 Total unrecognized compensation expense$11,551  
RSA/RSU activity during the ninesix months ended SeptemberJune 30, 2017,2020, was as follows:
     Performance-Based Awards
 Service-Based Awards Performance Vesting Market Vesting
 
Number of
RSAs/RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value
 
Number of
RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value
 
Number of
RSUs
(in thousands)
 
Weighted-
Average Grant-
Date Fair
Value(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.
Service-Based Awards
Service-Based AwardsPerformance-Based Awards -
Market Vesting
Number of
RSUs
(in thousands)		Weighted-
Average Grant-
Date Fair
Value		Number of
RSUs
(in thousands)		Weighted-
Average Grant-
Date Fair
Value
Outstanding at January 1, 2020928  $16.77  255  $16.56  
Granted356  $12.37  290  $11.52  
Settled(280) $17.73  (46) $18.58  
Forfeited(202) $16.80  (105) $15.23  
Outstanding at June 30, 2020802  $14.47  394  $12.97  
Vested at June 30, 2020132  $15.83  —  $—  
Nonvested at June 30, 2020670  $14.21  394  $12.97  
The Corporation and ESH REIT granted approximately 243,000 and 26,000 service-based awards, respectively, during the nine months ended September 30, 2017, with a weighted-average grant-date fair value per award of $17.50 and $17.56, respectively.
The grant-date fair value of awards with service vesting conditions is based on the closing price of a Paired Share on the date of grant. Service-based awards vest over a period of one to fourthree years, subject to the grantee’s continued employment or service.
Performance-Based Awards
The Corporation granted approximately 192,000 awards with performance vesting conditions during the nine months ended September 30, 2017, with a grant-date fair value per award of $17.45. The grant-date fair value of awards with performance vesting conditions is based on the closing price of a Paired Share on the date of grant. Equity-based compensation expense with respect to these awards is adjusted over the remainder of the fiscal year to reflect the probability of achievement of performance targets defined in the award agreements. These awards vest over the remainder of the fiscal year, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 200% of the awarded number of RSUs based on the achievement of defined performance targets.
The Corporation granted approximately 104,000 awards with market vesting conditions during the nine months ended September 30, 2017, with a grant-date fair value per award of $18.58. The grant-date fair value of awards with market vesting conditions is based on an independent third-party valuation. These awards vest at the end of a three-yearthree-year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0% to 150% of the awarded number of

RSUs based on the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreements. During the ninesix months ended SeptemberJune 30, 2017,2020, the grant-date fair value of awards with market vesting conditions waswere calculated using a Monte Carlo simulation model with the following key assumptions:

Expected holding period2.862.92 years
Risk-freeRisk–free rate of return1.461.43 %
Expected dividend yield4.727.01 %

14.DEFINED CONTRIBUTION PLANS
ESA Management has a savings plan that qualifies under Section 401(k) of
14. SUBSEQUENT EVENTS
Corporation Intercompany Facility
In July 2020, the Code for all employees meetingCorporation, as borrower, and ESH REIT, as lender, entered into an unsecured credit facility (the "Corporation Intercompany Facility"). Under the eligibility requirements ofCorporation Intercompany Facility, the plan. For the period from January 1, 2016 through September 9, 2016, the plan had an employer-matching contribution of 100% of the first 3% of an employee's contribution and 50% of the next 2% of an employee's contribution, which vested immediately. Beginning January 1, 2017, the plan has an employer-matching contribution of 50% of the first 6% of an employee's contribution, which vests over an employee's initial three-year service period. The plan also provides for contributionsCorporation may borrow up to 100%$150.0 million. Loans under the facility bear interest at an annual rate of eligible employee pretax salary, subject4.5%. In addition to paying interest on outstanding principal, the Corporation is required to pay a commitment fee to ESH REIT of 0.25% on the unutilized facility balance. There is no scheduled amortization under the facility and the facility matures on July 2, 2025. Obligations under the Corporation Intercompany Facility and guarantees thereof are unsecured and fully subordinated to the Code’s annual deferral limit of $18,000 during 2017 and 2016. Employer contributions, net of forfeitures, totaled approximately $0.5 million and $0.8 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $1.3 million and $2.6 million for the nine months ended September 30, 2017 and 2016, respectively.
In June 2016, ESA Management established a non-qualified deferred compensation plan to allow certain eligible employees an option to defer a portion of their compensation on a tax-deferred basis. Beginning January 2017, the plan had an employer-matching contribution of 50% of the first 6% of an employee's contribution, which vests over a three-year service period. The plan is fully funded in a Rabbi Trust, which is subject to creditor claims in the event of insolvency, but the assets held in the Rabbi Trust are not available for general corporate purposes. As of September 30, 2017, approximately $0.7 million is included in other assets and accounts payable and accrued liabilities related to this plan.
15.SUBSEQUENT EVENTS
On November 7, 2017, the Board of Directorsobligations of the Corporation declared a cash distributionunder the Corporation Revolving Credit Facility. The Corporation has the option to prepay outstanding balances under the facility without penalty. As of $0.11 per share forAugust 10, 2020, the third quarteroutstanding balance under the facility was $0.
ESH REIT Revolving Credit Facility Repayment
On August 6, 2020, ESH REIT repaid the $350.0 million outstanding balance under the ESH REIT Revolving Credit Facility. As of 2017 on its common stock. The distribution is payable on December 5, 2017 to shareholders of record as of November 21, 2017. Also on November 7, 2017,August 10, 2020, the outstanding balance under the facility was $0.
Distribution
25

On August 10, 2020, the Board of Directors of ESH REIT declared a cash distribution of $0.10$0.01 per share for the thirdsecond quarter of 20172020 on its Class A and Class B common stock. This distribution is also payable on December 5, 2017September 8, 2020 to shareholders of record as of November 21, 2017.August 25, 2020.
In OctoberCOVID-19 Pandemic Update
We expect our business and November 2017, ESH REIT executed two purchaseoperational outlook to continue to be materially negatively impacted by the COVID-19 pandemic, the impact of which will hinder the ability to predict future results. As the pandemic evolves, we continue to evaluate its impact on our operations, financial condition and sale agreementscurrent and future business strategies. Additionally, we continue to divest twenty-six Extended Stay America-branded hotels for approximately $130.4 million, including approximately $1.9 million in initial franchise application fees, subjectassess our ability to adjustment. The Company expectsnavigate industry, market and overall economic conditions. We may implement changes to manage twenty-fiveour current and future business strategies as a result of the hotels. These transactions are expectedvolatility related to closeCOVID-19, with a focus on balancing the preservation of liquidity with other balance sheet considerations, such as necessary capital expenditures and reductions in 2018 uponleverage. As of July 31, 2020, the Company had unrestricted and subject to the completionrestricted cash and cash equivalents of customary due diligence and the satisfaction or waiver of certain closing conditions.$685.2 million.



26

ESH HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 20172020 AND DECEMBER 31, 20162019
(In thousands, except share and per share data)
(Unaudited)

September 30,
2017		 December 31,
2016		June 30,
2020		December 31,
2019
ASSETS   ASSETS
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,092,693 and $959,449$3,808,125
 $3,914,569
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,454,959 and $1,372,595PROPERTY AND EQUIPMENT - Net of accumulated depreciation of $1,454,959 and $1,372,595$3,499,562  $3,506,020  
CASH AND CASH EQUIVALENTS65,013
 53,506
CASH AND CASH EQUIVALENTS606,680  296,134  
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
RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 10)RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 10)13,056  1,572  
DEFERRED RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 10)DEFERRED RENTS RECEIVABLE FROM EXTENDED STAY AMERICA, INC. (Note 10)33,950  28,917  
INTANGIBLE ASSETS - Net of accumulated amortization of $1,380 and $763INTANGIBLE ASSETS - Net of accumulated amortization of $1,380 and $7639,096  9,590  
GOODWILL47,627
 52,245
GOODWILL44,012  44,012  
DEFERRED TAX ASSETS244
 —
OTHER ASSETS32,435
 13,973
OTHER ASSETS20,942  21,209  
TOTAL ASSETS$4,003,629
 $4,077,505
TOTAL ASSETS$4,227,298  $3,907,454  
LIABILITIES AND EQUITY
 
LIABILITIES AND EQUITY
LIABILITIES:
 
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
Term loan facility payable - Net of unamortized deferred financing costs and debt discount
of $10,174 and $10,993
Term loan facility payable - Net of unamortized deferred financing costs and debt discount
of $10,174 and $10,993
$616,003  $618,338  
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $32,758 and $35,702
Senior notes payable - Net of unamortized deferred financing costs and debt discount
of $32,758 and $35,702
2,017,242  2,014,298  
Revolving credit facility—
 45,000
Revolving credit facility350,000  —  
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
Finance lease liabilitiesFinance lease liabilities3,767  3,379  
Unearned rental revenues from Extended Stay America, Inc. (Note 10)Unearned rental revenues from Extended Stay America, Inc. (Note 10)70,528  38,770  
Due to Extended Stay America, Inc., net (Note 10)Due to Extended Stay America, Inc., net (Note 10)7,261  11,838  
Accounts payable and accrued liabilities88,473
 69,520
Accounts payable and accrued liabilities73,318  71,453  
Deferred tax liabilities—
 3,286
Deferred tax liabilities11  11  
Total liabilities2,877,076
 2,759,586
Total liabilities3,138,130  2,758,087  
COMMITMENTS AND CONTINGENCIES (Note 10)

 

COMMITMENTS AND CONTINGENCIES (Note 11)COMMITMENTS AND CONTINGENCIES (Note 11)
EQUITY:

 

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
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, 177,482,082 and 179,483,397 shares issued and outstandingCommon 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, 177,482,082 and 179,483,397 shares issued and outstanding4,280  4,300  
Additional paid in capital1,087,276
 1,144,664
Additional paid in capital1,051,560  1,050,740  
Preferred stock - no par value, $1,000 liquidation value, 125 shares authorized, issued and outstanding73
 73
Preferred stock—no par value, $1,000 liquidation value, 125 shares authorized, issued and outstandingPreferred stock—no par value, $1,000 liquidation value, 125 shares authorized, issued and outstanding73  73  
Retained earnings29,548
 176,532
Retained earnings34,426  93,424  
Accumulated other comprehensive income (loss)5,228
 (7,812)
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(1,171) 830  
Total equity1,126,553
 1,317,919
Total equity1,089,168  1,149,367  
TOTAL LIABILITIES AND EQUITY$4,003,629
 $4,077,505
TOTAL LIABILITIES AND EQUITY$4,227,298  $3,907,454  
See accompanying notes to unaudited condensed consolidated financial statements.

27

ESH HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
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
June 30,		Six Months Ended
June 30,
 2020201920202019
REVENUES - Rental revenues from Extended Stay America, Inc. (Note 10)$119,486  $118,102  $238,676  $236,107  
OPERATING EXPENSES:
Hotel operating expenses23,289  21,937  47,816  43,245  
General and administrative expenses (Note 10)3,769  3,544  7,936  7,525  
Depreciation and amortization50,127  48,132  99,715  95,999  
Impairment of long-lived assets675  —  675  —  
Total operating expenses77,860  73,613  156,142  146,769  
OTHER INCOME—  —  —  15  
INCOME FROM OPERATIONS41,626  44,489  82,534  89,353  
OTHER NON-OPERATING (INCOME) EXPENSE(245) (134) 315  (273) 
INTEREST EXPENSE, NET33,197  30,267  65,625  60,201  
INCOME BEFORE INCOME TAX EXPENSE8,674  14,356  16,594  29,425  
INCOME TAX EXPENSE9  7  11  10  
NET INCOME$8,665  $14,349  $16,583  $29,415  
NET INCOME PER ESH HOSPITALITY, INC. COMMON SHARE:
Class A - basic$0.02  $0.03  $0.04  $0.07  
Class A - diluted$0.02  $0.03  $0.04  $0.07  
Class B - basic$0.02  $0.03  $0.04  $0.07  
Class B - diluted$0.02  $0.03  $0.04  $0.07  
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 - basic177,551  188,450  177,771  188,399  
Class B - diluted177,844  188,813  178,008  188,695  
See accompanying notes to unaudited condensed consolidated financial statements.

28

ESH HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands)
(Unaudited)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
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
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
NET INCOME$8,665  $14,349  $16,583  $29,415  
OTHER COMPREHENSIVE INCOME:
INTEREST RATE CASH FLOW HEDGE GAIN (LOSS), NET OF TAX OF $0, $1, $1, $253  (2,327) (2,001) (4,014) 
COMPREHENSIVE INCOME$8,718  $12,022  $14,582  $25,401  
See accompanying notes to unaudited condensed consolidated financial statements.



29

ESH HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands, except preferred stock shares and per share data)
(Unaudited)

 Common StockPreferred StockAdditional
Paid in 
Capital		Retained
Earnings		Accumulated
Other
Comprehensive Income		Total
Equity
Class A
Shares		Class B
Shares		AmountSharesAmount
BALANCE - April 1, 2019250,494  188,403  $4,389  125  $73  $1,091,456  $63,185  $4,102  $1,163,205  
Net income—  —  —  —  —  —  14,349  —  14,349  
Interest rate cash flow hedge loss, net of tax—  —  —  —  —  —  —  (2,327) (2,327) 
Common distributions - $0.14 per Class A and Class B common share—  —  —  —  —  —  (61,611) —  (61,611) 
Preferred distributions—  —  —  —  —  —  (4) —  (4) 
Equity-based compensation—  9  —  —  —  389  —  —  389  
BALANCE - June 30, 2019250,494  188,412  $4,389  125  $73  $1,091,845  $15,919  $1,775  $1,114,001  


 Common StockPreferred StockAdditional
Paid in 
Capital		Retained
Earnings		Accumulated
Other
Comprehensive Loss		Total
Equity
Class A
Shares		Class B
Shares		AmountSharesAmount
BALANCE - April 1, 2020250,494  177,466  $4,280  125  $73  $1,051,076  $30,043  $(1,224) $1,084,248  
Net income—  —  —  —  —  —  8,665  —  8,665  
Interest rate cash flow hedge gain, net of tax—  —  —  —  —  —  —  53  53  
Common distributions - $0.01 per Class A and Class B common share—  —  —  —  —  —  (4,278) —  (4,278) 
Preferred distributions—  —  —  —  —  —  (4) —  (4) 
Equity-based compensation—  16  —  —  —  484  —  —  484  
BALANCE - June 30, 2020250,494  177,482  $4,280  125  $73  $1,051,560  $34,426  $(1,171) $1,089,168  



30

 Common Stock Preferred Stock 
Additional
Paid in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
Class A
Shares
 
Class B
Shares
 Amount Shares Amount    
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 StockAdditional
Paid in Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Equity
Class A
Shares		Class B
Shares		AmountSharesAmount
BALANCE - January 1, 2019250,494  188,219  $4,387  125  $73  $1,090,809  $114,096  $5,789  $1,215,154  
Net income—  —  —  —  —  —  29,415  —  29,415  
Interest rate cash flow hedge loss, net of tax—  —  —  —  —  —  —  (4,014) (4,014) 
Common distributions - $0.29 per Class A and Class B common share—  —  —  —  —  —  (127,584) —  (127,584) 
Preferred distributions—  —  —  —  —  —  (8) —  (8) 
Equity-based compensation—  193  2  —  —  1,036  —  —  1,038  
BALANCE - June 30, 2019250,494  188,412  $4,389  125  $73  $1,091,845  $15,919  $1,775  $1,114,001  

 Common Stock Preferred Stock 
Additional
Paid in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Equity
 
Class A
Shares
 
Class B
Shares
 Amount Shares Amount    
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
 Common StockPreferred StockAdditional
Paid in Capital		Retained
Earnings		Accumulated
Other
Comprehensive (Loss) Income		Total
Equity
Class A
Shares		Class B
Shares		AmountSharesAmount
BALANCE - January 1, 2020250,494  179,483  $4,300  125  $73  $1,050,740  $93,424  $830  $1,149,367  
Net income—  —  —  —  —  —  16,583  —  16,583  
Interest rate cash flow hedge loss, net of tax—  —  —  —  —  —  —  (2,001) (2,001) 
Repurchase of Class B common stock—  (2,237) (22) —  —  —  (11,384) —  (11,406) 
Common distributions - $0.15 per Class A and Class B common share—  —  —  —  —  —  (64,189) —  (64,189) 
Preferred distributions—  —  —  —  —  —  (8) —  (8) 
Equity-based compensation—  236  2  —  —  820  —  —  822  
BALANCE - June 30, 2020250,494  177,482  $4,280  125  $73  $1,051,560  $34,426  $(1,171) $1,089,168  
See accompanying notes to unaudited condensed consolidated financial statements.

31

ESH HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
(In thousands)
(Unaudited)

Nine Months Ended
September 30,		Six Months Ended
June 30,
2017 2016 20202019
OPERATING ACTIVITIES:   OPERATING ACTIVITIES:
Net income$7,646
 $19,993
Net income$16,583  $29,415  
Adjustments to reconcile net income to net cash provided by operating activities:   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
 —
Depreciation and amortizationDepreciation and amortization99,715  95,999  
Foreign currency transaction loss (gain)Foreign currency transaction loss (gain)315  (273) 
Amortization of deferred financing costs and debt discount5,990
 28,281
Amortization of deferred financing costs and debt discount4,046  3,939  
Amortization of above-market ground leases(102) (102)
Loss on disposal of property and equipment8,065
 7,254
Loss on disposal of property and equipment4,979  3,377  
Loss on sale of hotel properties3,274
 —
Impairment of long-lived assets15,046
 —
Impairment of long-lived assets675  —  
Equity-based compensation266
 242
Equity-based compensation264  277  
Deferred income tax benefit(3,700) (1,704)
Changes in assets and liabilities:   Changes in assets and liabilities:
Deferred rents receivable from Extended Stay America, Inc.11,393
 966
Deferred rents receivable from Extended Stay America, Inc.(5,033) (10,288) 
Due to Extended Stay America, Inc., net(1,109) (2,853)Due to Extended Stay America, Inc., net(4,867) (7,764) 
Other assets(5,625) 1,011
Other assets(2,819) (5,111) 
Unearned rental revenues/rents receivable from Extended Stay America, Inc., net132,842
 133,915
Unearned rental revenues/rents receivable from Extended Stay America, Inc., net20,274  67,646  
Accounts payable and accrued liabilities24,495
 28,562
Accounts payable and accrued liabilities7,027  8,140  
Net cash provided by operating activities368,479
 375,253
Net cash provided by operating activities141,159  185,357  
INVESTING ACTIVITIES:   INVESTING ACTIVITIES:
Purchases of property and equipment(130,899) (164,188)Purchases of property and equipment(61,145) (80,173) 
Proceeds from sale of hotel properties42,005
 —
Decrease in restricted cash344
 60,601
Development in process paymentsDevelopment in process payments(41,537) (21,841) 
Payment for intangible assetsPayment for intangible assets(455) (6,296) 
Proceeds from insurance and related recoveries471
 2,716
Proceeds from insurance and related recoveries987  613  
Net cash used in investing activities(88,079) (100,871)Net cash used in investing activities(102,150) (107,697) 
FINANCING ACTIVITIES:   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
Principal payments on term loan facilityPrincipal payments on term loan facility(3,154) (5,683) 
Proceeds from revolving credit facility105,000
 50,000
Proceeds from revolving credit facility350,000  —  
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)Payments of deferred financing costs(17) —  
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
Principal payments on finance leasesPrincipal payments on finance leases(69) (58) 
Repurchase of Class B common stockRepurchase of Class B common stock(11,406) —  
Issuance of Class B common stock related to issuance of Paired SharesIssuance of Class B common stock related to issuance of Paired Shares762  1,248  
Common distributions(191,328) (267,907)Common distributions(64,571) (127,582) 
Preferred distributions(16) (8)Preferred distributions(8) (8) 
Net cash used in financing activities(268,893) (461,215)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities271,537  (132,083) 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS11,507
 (186,833)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS310,546  (54,423) 
CASH AND CASH EQUIVALENTS - Beginning of period53,506
 223,256
CASH AND CASH EQUIVALENTS - Beginning of period296,134  178,538  
CASH AND CASH EQUIVALENTS - End of period$65,013
 $36,423
CASH AND CASH EQUIVALENTS - End of period$606,680  $124,115  
SUPPLEMENTAL CASH FLOW INFORMATION:   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
Cash payments for interest, excluding modification, prepayment and other penalties, net of capitalized interest of $1,643 and $751Cash payments for interest, excluding modification, prepayment and other penalties, net of capitalized interest of $1,643 and $751$63,687  $57,527  
Cash payments for income taxes, net of refunds of $181 and $0Cash payments for income taxes, net of refunds of $181 and $0$290  $606  
Operating cash payments for finance leasesOperating cash payments for finance leases$118  $122  
Operating cash payments for operating leasesOperating cash payments for operating leases$385  $354  
NONCASH INVESTING AND FINANCING ACTIVITIES:   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
Capital expenditures included in due to/from Extended Stay America, Inc. and accounts payable and accrued liabilities$18,857  $26,920  
Deferred financing costs included in accounts payable and accrued liabilities$—
 $1,146
Proceeds from sale of hotel properties included in other assets$12,675
 $—
Additions to finance lease right-of-use assets and liabilitiesAdditions to finance lease right-of-use assets and liabilities$457  $109  
Common distributions included in accounts payable and accrued liabilities$1,623
 $1,241
Common distributions included in accounts payable and accrued liabilities$385  $794  
Net receivable (payable) related to RSUs not yet settled or issued included in due to/from Extended Stay America, Inc.Net receivable (payable) related to RSUs not yet settled or issued included in due to/from Extended Stay America, Inc.$83  $(131) 
See accompanying notes to unaudited condensed consolidated financial statements.

32

ESH HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBERJUNE 30, 20172020 AND DECEMBER 31, 20162019 AND FOR THE THREE AND NINESIX MONTHS ENDED
SEPTEMBERJUNE 30, 20172020 AND 20162019
(Unaudited)

1.BUSINESS, ORGANIZATION AND BASIS OF CONSOLIDATION
1. BUSINESS, ORGANIZATION AND BASIS OF CONSOLIDATION
ESH Hospitality, Inc. (“ESH REIT”) was formed as a limited liability company in the state of Delaware on September 16, 2010 and was converted to a corporation on November 5, 2013. Extended Stay America, Inc. (the “Corporation”), the parent of ESH REIT, was incorporated in the state of Delaware on July 8, 2013. On November 18, 2013, the Corporation and ESH REIT completed an initial public offering of 32.5 million Paired Shares. A "Paired Share" consists of one share of common stock, par value $0.01 per share, of the Corporation, that is attached to and trades as a single unit with one share of Class B common stock, par value $0.01 per share, of ESH REIT. The Corporation owns, and is expected to continue to own, all of the issued and outstanding Class A common stock of ESH REIT, which, as of SeptemberJune 30, 2017,2020, represents approximately 57%59% of the outstanding common stock of ESH REIT.
A “Paired Share” consists of 1 share of common stock, par value $0.01 per share, of the Corporation, that is attached to and trades as a single unit with 1 share of Class B common stock, par value $0.01 per share, of ESH REIT. Each outstanding share of ESH REIT Class B common stock is attached to and trades with 1 share of Corporation common stock.
As of SeptemberJune 30, 2017,2020 and December 31, 2019, ESH REIT and its subsidiaries owned and leased 625561 and 557 hotel properties, respectively, in 4440 U.S. states, consisting of approximately 68,800 rooms. As of December 31, 2016, ESH REIT62,400 and its subsidiaries owned and leased 626 hotel properties in 44 U.S. states, consisting of approximately 68,90061,900 rooms, and three hotels in Canada, consisting of 500 rooms. Therespectively. All hotels are leased to wholly-owned subsidiaries of the Corporation (the “Operating Lessees”).
As of September 30, 2017, ESH REIT’s common equity consisted of the following: (i) approximately 250.5 million shares of Class A common stock outstanding (approximately 57% of its common equity), all of which were owned by the Corporation, and (ii) approximately 192.3 million shares of Class B common stock outstanding (approximately 43% of its common equity), approximately 99.3% of which were owned by the public and approximately 0.7% of which were owned by senior management and directors of the Corporation and ESH REIT.
As of December 31, 2016, ESH REIT’s common equity consisted of the following: (i) approximately 250.5 million shares of Class A common stock outstanding (approximately 56% of its common equity), all of which were owned by the Corporation, and (ii) approximately 195.4 million shares of Class B common stock outstanding (approximately 44% of its common equity), approximately 55.9% of which were owned by the public and approximately 44.1% of which were owned by Centerbridge Partners, L.P., Paulson & Co. Inc. and The Blackstone Group L.P. and their funds or affiliates (individually, each a “Former Sponsor,” or collectively, the “Former Sponsors”) and senior management and directors of the Corporation and ESH REIT.
2017 Secondary Offerings
In March, May and June 2017, certain selling stockholders (the "Selling Stockholders") sold 25.0 million, 30.0 million and 25.0 million Paired Shares, respectively, pursuant to an automatic shelf registration statement as part of secondary offerings. In conjunction with these secondary offerings, ESH REIT repurchased and retired, in the aggregate, approximately 2.0 million ESH REIT Class B common shares from the Former Sponsors for approximately $12.2 million (see Note 9). The Selling Stockholders consisted solely of entities affiliated with the Former Sponsors and did not include officers or directors of the Corporation or ESH REIT. Neither the Corporation nor ESH REIT sold Paired Shares in the secondary offerings and neither received proceeds from the secondary offerings. The Corporation and ESH REIT incurred professional fees in connection with the secondary offerings. Total expenses incurred by ESH REIT were approximately $0.1 million and $0.6 million during the three and nine months ended September 30, 2017, respectively.
After giving effect to the June 2017 secondary offering, funds or affiliates of Paulson & Co. Inc. own approximately 1.8 million Paired Shares, while funds or affiliates of Centerbridge Partners, L.P. and The Blackstone Group L.P. no longer own any Paired Shares.
Paired Share Repurchase Program
—In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program. As a result of several increases in authorized amounts and 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 ofextensions, 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 ofcurrently authorizes the Corporation and ESH REIT authorized an increase of the combined Paired Share repurchase program fromto purchase up to $200$550 million to up to $300 million ofin Paired Shares and extended

the maturity of the program through December 31, 2017, each effective January 1, 2017.2020. Repurchases may be made at management'smanagement’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). Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice. As of SeptemberJune 30, 2017,2020, ESH REIT had repurchased and retired approximately 12.828.6 million ESH REIT Class B common shares for approximately $75.2$166.4 million, of which approximately 5.8including transaction fees, and $101.1 million remained available under the combined Paired Shares were repurchased and retired from entities affiliated with the Former Sponsors.Share repurchase program.
Basis of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), and include the financial position, results of operations, comprehensive income, changes in equity and cash flows of ESH REIT and its consolidated subsidiaries. Changes in ownership interests in a consolidated subsidiary that do not result in a loss of control are accounted for as equity transactions. All intercompany accounts and transactions have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Presentation—Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been condensed or omitted in the accompanying unaudited condensed consolidated financial statements. ESH REIT believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 20162019, included in the combined annual report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC"(“SEC”) on February 28, 2017.26, 2020.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly ESH REIT’s financial position as of SeptemberJune 30, 2017,2020, the results of ESH REIT’s operations, and comprehensive income and changes in equity for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016 and changes in equity2019 and cash flows for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. Interim results are not necessarily indicative of full year performance because of acquisitions, dispositions, financing or other capital transactions and the impact of accounting for contingentvariable rental payments under lease arrangements.arrangements, as well as the impact of the COVID-19 pandemic.
Use of Estimates—The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of
33

contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management used significant estimates to determine the estimated useful lives of tangible assets, as well as in the assessment of tangible and intangible assets including goodwill, for impairment, estimated liabilities for insurance reserves and the grant-date fair value of certain equity-based awards.impairment. Actual results could differ from those estimates.
Property and Equipment—Property and equipment additions are recorded at cost. Major improvements that extend the life or utility of property or equipment are capitalized and depreciated over a period equal to the shorter of the estimated useful life of the improvement or the remaining estimated useful life of the asset. Ordinary repairs and maintenance are charged to expense as incurred. Depreciation and amortization are recorded on a straight-line basis over estimated useful lives which range from two2 to 49 years.
Management assesses the performance of long-lived assets for potential impairment quarterly, as well as when events or changes in circumstances indicate the carrying amount of aan asset or group of assets may not be recoverable. The identification of events or changes in circumstances that indicate the carrying value of assets may not be recoverable requires judgment. ESH REIT reviews for impairment indicators at the lowest level of identifiable cash flows based on quantitative, qualitative and certain industry-related factors. Quantitative factors include, but are not limited to, hotel property EBITDA, EBITDA margins and EBITDA multiples, and serve to screen assets or asset groups with historical, current or projected operating cash flow losses or deterioration. Qualitative factors include a change in physical condition, economic environment, regulatory environment or primary use, including the evaluation of the asset or group of assets for disposition.
Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property or group of hotel properties (groups of hotel properties align with hotels as they are grouped(grouped under ESH REIT’s leases) to the estimated future undiscounted cash flows expected to be generated by eachthe hotel property or group of hotel properties. Impairment is recognized when estimated future undiscounted cash flows, including expected proceeds from disposition, are less than the carrying value of eachthe hotel property or group of hotel properties. To the extent that a hotel property or group of hotel properties is impaired, theirthe excess carrying amount over their estimated fair value is recognized as an impairment charge and reduces income from operations.charge. Fair value is determined based upon the discounted cash flows of athe hotel property or group of hotel properties, bids, quoted market prices or independent appraisals, as considered necessary. No
The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating performance and current and future market conditions. It is possible that such judgments and/or estimates will change; in particular, the effects of the COVID-19 pandemic could cause economic and market conditions to continue to deteriorate, and if this occurs, or if ESH REIT's expected holding period for real estate assets changes, ESH REIT may recognize impairment charges or losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets. During the three and six months ended June 30, 2020, ESH REIT recognized an impairment charge of $0.7 million related to an undeveloped land parcel. Based on market conditions and ESH REIT's plans with respect to its hotel properties as of June 30, 2020, ESH REIT believes that the carrying amounts of its hotel properties are recoverable and no additional impairment charges were recognizedrecorded during the three and six months ended SeptemberJune 30, 2017.2020; however, actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the COVID-19 pandemic.
Intangible Assets and Goodwill —Intangible assets include licenses related to certain internal-use software. Licenses are amortized using the straight-line method over their estimated useful life, which is the remaining non-cancellable term of each respective contract. Goodwill represents the purchase price in excess of the fair value of net assets acquired in conjunction with the acquisition of ESH REIT's predecessor in 2010.
Definite-lived intangible assets are reviewed for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is reviewed for impairment quarterly, and ESH REIT recognizedtests for impairment charges relatedmore frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ESH REIT has 1 operating segment, which is its reporting unit; therefore, management analyzes goodwill associated with all hotels when analyzing for potential impairment. ESH REIT first assesses qualitative factors to propertydetermine if it is more likely than not that the fair value of its reporting unit is less than its carrying amount.
ESH REIT believes that the carrying amount of its intangible assets, including goodwill, are recoverable and equipmentthere are no changes in circumstances that would more likely than not reduce the fair value of approximately $15.0 million for the nine months ended September 30, 2017 andits reporting unit below its carrying amount; therefore, no impairment charges forwere recorded during the three and ninesix months ended SeptemberJune 30, 2016 (see Note 5). The estimation2020. However, if the effects of future undiscounted cash flows is inherently uncertain and relies upon assumptions regarding current and futurethe COVID-19 pandemic cause economic and market conditions. If suchconditions to continue to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the COVID-19 pandemic.

34

conditions change, an impairment charge to further reduce the carrying value of a group of hotel properties could occur in a future period in which conditions change.
Revenue Recognition—ESH REIT’s sole source of revenues is rental revenue derived from operating leases with subsidiaries of the Corporation (the Operating Lessees)(i.e., all revenues are generated from agreements with related parties (see Note 10)). ESH REIT records rentalRental revenues are recorded on a straight-line basis as they are earned during the lease terms. Rents receivable from Extended Stay America, Inc. on the accompanying unaudited condensed consolidated balance sheets represent monthly rental amounts contractually due. Deferred rents receivable from Extended Stay America, Inc. on the accompanying unaudited condensed consolidated balance sheets represent the cumulative difference between straight-line rental revenues recognized and rental revenues contractually due. As scheduled rent payments have begun to exceed straight-line rental revenue, this amount, approximately $28.2 million as of September 30, 2017, will gradually decrease through the remainder of the lease terms until it is zero at the end of the lease terms in October 2018. Lease rental payments received prior to rendering services are included in unearned rental revenues from Extended Stay America, Inc. on the accompanying unaudited condensed consolidated balance sheets. ContingentVariable rental revenues, specifically percentage rental revenues related to hotel revenues of the Operating Lessees, are recognized when such amounts are fixed and determinable (i.e., only when percentage rental revenue thresholds have been achieved).
Segments—ESH REIT’s business represents a single operating segment based on the way ESH REIT manages its business. ESH REIT leases the hotel properties in similar manners to similar customers. The amounts of long-lived assets and net revenues outside the U.S. are not significant for any period presented.
Recently Issued Accounting Standards
Goodwill—Reference Rate Reform—In March 2020, the FASB issued an accounting standards update that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR, subject to meeting certain criteria. ESH REIT adopted this update on March 12, 2020, and the update is effective through December 31, 2022, during which time ESH REIT may elect to apply the optional expedients and exceptions offered under the standard. ESH REIT's variable rate debt and interest rate swap are tied to rates that reference LIBOR (see Notes 7 and 8). As of June 30, 2020, ESH REIT had not applied any of these optional expedients or exceptions. The adoption of this update did not, and is not expected to, have a material effect on ESH REIT's condensed consolidated financial statements.
IncomeTaxes—In December 2019, the FASB issued an accounting standards update which simplifies the accounting for income taxes. The update amends several topics including interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim-period tax accounting. This update will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, and may be early adopted. ESH REIT does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements.
Fair Value Measurement—In August 2018, the FASB issued an accounting standards update which modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. ESH REIT adopted this update on January 1, 2020. The adoption of this update did not have a material effect on ESH REIT's condensed consolidated financial statements.
Intangibles-Goodwill and Other—Internal-Use Software—In August 2018, the FASB issued an accounting standards update which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ESH REIT adopted this update on January 1, 2020, using a prospective transition method. The adoption of this update did not have a material effect on ESH REIT's condensed consolidated financial statements.
Goodwill—In January 2017, the Financial Accounting Standards Board ("FASB")FASB issued an accounting standards update in which the guidance on testing for goodwill was updated to eliminate Step 2 in the determination on whether goodwill should be considered impaired. Annual and/or interim assessments are still required to be completed. This update will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. ESH REIT does not expect the adoption of this update to have a material effect on ESH REIT’s unaudited condensed consolidated financial statements.
Statement of Cash Flows—In August and November 2016, the FASB issued accounting standards updates which provide additional clarity on the classification of specific events on the statement of cash flows. These events include debt prepayment and extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, distributions received from equity method investees, and beneficial interests in securitization transactions. These updates also require amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. These updates are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, with early adoption permitted and should be applied using a retrospective transition method to each period presented. The adoption of these updates will require cash outflows related to debt prepayment and extinguishment costs to be classified as financing activities. For the nine months ended September 30, 2017 and 2016, debt prepayment and extinguishment costs included within net cash provided by operating activities totaled approximately $1.2 million and $3.9 million, respectively. Additionally, the effect of the adoption of these updates on ESH REIT's consolidated statements of cash flows will be to include restricted cash in the beginning and end of period balances of cash, restricted cash and cash equivalents. The change in restricted cash is currently included in investing activities in the consolidated statements of cash flows.
Compensation—Stock Compensation—In March 2016, the FASB issued an accounting standards update which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, and certain classifications on the statement of cash flows.required. ESH REIT adopted this update on January 1, 20172020, using a prospective transition method. The adoption of this update did not have a material effect on ESH REIT’s unauditedREIT's condensed consolidated financial statements.
In May 2017, the FASB issued an accounting standards update that provides guidance about which changes to the terms or conditions of a share-based payment award requires an entity to apply modification accounting. This update will be effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted and should be applied prospectively to awards modified on or after the adoption date. ESH REIT does not expect the adoption of this update to have a material effect on ESH REIT’s unaudited condensed consolidated financial statements.

3. NET INCOME PER SHARE
Derivatives and Hedging—In August 2017, the FASB issued an accounting standards update which changes the designation and measurement guidance for qualifying hedging relationships and the presentation of hedging results. This update expands and refines hedge accounting and aligns recognition and presentation of its effects within the financial statements. This update is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and will require a cumulative-effect adjustment to the balance of retained earnings as of the beginning of the fiscal year that an entity adopts this update. ESH REIT is currently assessing the impact the adoption of the update will have on its consolidated financial statements. Expected impacts include, on a prospective basis, the elimination of hedge ineffectiveness related to designated interest rate swaps, the presentation of all interest rate hedge related items that impact earnings in the interest expense line item in the consolidated statement of operations and an election to perform qualitative assessments of hedge effectiveness.
In March 2016, the FASB issued an accounting standards update to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts and to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ESH REIT adopted this update on January 1, 2017. The adoption of this update did not have a material effect on ESH REIT’s unaudited condensed consolidated financial statements.
Leases—In February 2016, the FASB issued an accounting standards update which introduces a lessee model that requires a right-of-use asset and lease obligation to be presented on the balance sheet for all leases, whether operating or financing. The update eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The update also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. This update will be effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted, and must be applied using a modified retrospective approach, which will require adjustment to all comparative periods presented.
As of September 30, 2017, using its incremental borrowing rate with respect to the future minimum lease payments under its operating leases (ground leases), ESH REIT has preliminarily estimated that the lease liability would have been between approximately $7.5 million and $11.5 million and the right of use asset would have been between approximately $1.0 million and $5.0 million, which includes adjustments for accrued lease payments, above market lease liabilities and lease incentives.
The recording of a lease obligation may increase total indebtedness for purposes of financial covenants within certain of ESH REIT’s existing debt agreements; however, ESH REIT does not expect this increase to cause instances of non-compliance with any of these covenants. ESH REIT currently does not expect the adoption of this update to have a material effect on its consolidated statements of operations or cash flows. ESH REIT expects to elect the optional practical expedients which relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The election to apply these practical expedients will, in effect, mean ESH REIT will continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that ESH REIT will recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.


3.NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to Class A and Class B common shareholders by the weighted-average number of shares of ESH REIT’s unrestricted Class A and Class B common stock outstanding, respectively. Diluted net income per share is computed by dividing net income available to Class A and Class B common shareholders, as adjusted for potentially dilutive securities, by the weighted-average number of shares of ESH REIT’s unrestricted Class A and Class B common stock outstanding, respectively, plus other potentially dilutive securities. Dilutive securities include certain equity-based awards issued under long-term incentive plans (see Note 11) and are included in the calculation provided that the inclusion of such securities is not anti-dilutive.
35

The calculations of basic and diluted net income per share, including a reconciliation of the numerators and denominators, are as follows (in thousands, except per share data):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Numerator:
Net income$8,665  $14,349  $16,583  $29,415  
Less preferred dividends(4) (4) (8) (8) 
Net income available to ESH Hospitality, Inc. common shareholders$8,661  $14,345  $16,575  $29,407  
Class A:
Net income available to ESH Hospitality, Inc. Class A common
shareholders - basic		$5,065  $8,186  $9,689  $16,783  
Amounts attributable to ESH Hospitality, Inc. Class B
shareholders assuming conversion		(3) (7) (5) (12) 
Net income available to ESH Hospitality, Inc. Class A common
shareholders - diluted		$5,062  $8,179  $9,684  $16,771  
Class B:
Net income available to ESH Hospitality, Inc. Class B common
shareholders - basic		$3,596  $6,159  $6,886  $12,624  
Amounts attributable to ESH Hospitality, Inc. Class B
shareholders assuming conversion		3  7  5  12  
Net income available to ESH Hospitality, Inc. Class B common
shareholders - diluted		$3,599  $6,166  $6,891  $12,636  
Denominator:
Class A:
Weighted-average number of ESH Hospitality, Inc. Class A common
shares outstanding - basic and diluted		250,494  250,494  250,494  250,494  
Class B:
Weighted-average number of ESH Hospitality, Inc. Class B common
shares outstanding - basic		177,551  188,450  177,771  188,399  
Dilutive securities293  363  237  296  
Weighted-average number of ESH Hospitality, Inc. Class B common
shares outstanding - diluted		177,844  188,813  178,008  188,695  
Net income per ESH Hospitality, Inc. common share - Class A - basic$0.02  $0.03  $0.04  $0.07  
Net income per ESH Hospitality, Inc. common share - Class A - diluted$0.02  $0.03  $0.04  $0.07  
Net income per ESH Hospitality, Inc. common share - Class B - basic$0.02  $0.03  $0.04  $0.07  
Net income per ESH Hospitality, Inc. common share - Class B - diluted$0.02  $0.03  $0.04  $0.07  

4. HOTEL ACQUISITIONS
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
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
 —



4.HOTEL DISPOSITIONS
On May 1, 2017, a subsidiary of ESH REIT, together with subsidiaries of the Corporation, sold its three Extended Stay Canada-brandedNaN hotels for 76.0 million Canadian dollars, or approximately $55.3 million, of which 67.4 million Canadian dollars, or approximately $49.0 million, related to ESH REIT assets. ESH REIT's carrying value of the hotels, including working capital and allocable goodwill, net of an impairment charge recordedwere acquired during the three and six months ended March 31, 2017, was approximately 51.2 million Canadian dollars, or approximately $37.3 million, resulting in a gain on sale of approximately 15.1 million Canadian dollars, or approximately $11.0 million, prior to the evaluation of existing accumulated foreign currency translation loss. Due to the fact that ESH REIT's Canadian subsidiary liquidated 100% of its assets, approximately $12.5 million of accumulated foreign currency translation loss was recognized in the condensed consolidated statement of operations during the nine months ended SeptemberJune 30, 2017. This charge more than fully offset the Canadian subsidiary's gain on sale, which resulted in a loss on sale of the Canadian hotels of approximately $1.5 million, net of closing costs and adjustments, which is reported in loss on sale of hotel properties during the nine months ended September 30, 2017 in the accompanying unaudited condensed consolidated statements of operations.
2020. On May 16, 2017,November 12, 2019, ESH REIT sold one U.S.-basedacquired a 121-room operating hotel from Crestwood Suites of Lakeland, LLC for gross proceeds$10.0 million. Other than ordinary components of $5.4 million. The carrying value of this hotel, includingprorated net working capital, and allocable goodwill, was approximately $6.8 million, which resulted in a loss on sale of approximately $1.8 million, net of closing costs and adjustments, which is reported in loss on sale of hotel properties during the nine months ended September 30, 2017no liabilities were assumed in the accompanying unaudited consolidated statementspurchase. The majority of operations.the purchase price was allocated to building and improvements, with estimated useful lives ranging from five to 44 years.

36

5. PROPERTY AND EQUIPMENT
Net investment in property and equipment as of June 30, 2020 and December 31, 2019, consists of the following (in thousands):
June 30,
2020		December 31,
2019
Hotel properties:
Land and site improvements (1)
$1,242,113  $1,230,598  
Building and improvements2,878,203  2,824,061  
Furniture, fixtures and equipment (2)
769,594  751,417  
Total hotel properties4,889,910  4,806,076  
Development in process (3)
63,611  70,864  
Other1,000  1,675  
Total cost4,954,521  4,878,615  
Less accumulated depreciation:(1,454,959) (1,372,595) 
Property and equipment — net$3,499,562  $3,506,020  

(1)Includes finance lease asset of $3.2 million as of June 30, 2020 and December 31, 2019.
(2)Includes finance lease asset of $0.5 million and $0 as of June 30, 2020 and December 31, 2019, respectively
(3)Includes finance lease asset of $0.8 million as of June 30, 2020 and December 31, 2019.
As of June 30, 2020 and December 31, 2019, development in process consisted of 11 and 15 land parcels, respectively, that were in various phases of construction and/or development. ESH REIT expects to delay commencement of construction of three of these locations as a result of current market uncertainty.
During the three and nine month periodssix months ended SeptemberJune 30, 20172020, and 2016, the four disposed hotel propertiesyear ended December 31, 2019, the following owned, newly constructed hotels were completed and leased to the Corporation:
Opening DateLocationNumber of
Hotels		Number of Rooms
December 2019Florida1124
December 2019Arizona1136
March 2020Florida1120
April 2020South Carolina1120
June 2020Georgia1124
June 2020Texas1124

During the three and six months ended June 30, 2020, these hotels contributed rental revenues, total operating expenses and (loss) income (loss) before income tax expense as follows (in thousands):
Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
Rental revenues$1,062  $1,763  
Total operating expenses1,070  1,657  
(Loss) income before income tax expense(8) 106  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Rental revenues from Extended Stay America, Inc.$—
 $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.


5.PROPERTY AND EQUIPMENT
Net investment in property and equipment as of September 30, 2017 and December 31, 2016, consists of the following (in thousands):
 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

During the three and ninesix months ended SeptemberJune 30, 2017 and 2016,2020, ESH REIT usingrecognized a $0.7 million impairment charge related to an undeveloped land parcel. ESH REIT used Level 2 observable inputs, including a non-binding bid to sell the asset, and Level 3 unobservable inputs, assessed propertyincluding estimated transaction costs, to determine the impairment charge incurred during the three and equipment for potential impairment. Nosix months ended June 30, 2020. NaN impairment charges were recognized during the three and six months ended SeptemberJune 30, 2017. 2019.
37

6. INTANGIBLE ASSETS AND GOODWILL
ESH REIT recognized impairment chargesREIT's intangible assets and goodwill as of approximately $15.0 million for the nine months ended SeptemberJune 30, 2017 related to the Canadian hotels that were sold. ESH REIT recognized no impairment charges during the three or nine months ended September 30, 2016.
Quantitative information with respect to unobservable inputs consists2020 and December 31, 2019, consist of internally developed cash flow models that include the following assumptions, among others: projections(dollars in thousands):
June 30, 2020
Gross
Carrying
Amount		Accumulated
Amortization		Net
Book Value
Definite-lived intangible assets—software licenses$10,476  $(1,380) $9,096  
Goodwill44,012  —  44,012  
Total intangible assets and goodwill$54,488  $(1,380) $53,108  

December 31, 2019
Gross
Carrying
Amount		Accumulated
Amortization		Net
Book Value
Definite-lived intangible assets—software licenses$10,353  $(763) $9,590  
Goodwill44,012  —  44,012  
Total intangible assets and goodwill$54,365  $(763) $53,602  

The remaining weighted-average amortization period for amortizing intangible assets is approximately 7 years as of lease revenues and expenses, demand trends, expectedJune 30, 2020. Estimated future capital expenditures and estimated discount rates. These assumptions are based on ESH REIT’s historical data and experience, budgets, industry projections and micro and macro general economic condition projections.amortization expense for amortizing intangible assets is as follows (in thousands):

Years Ending December 31,
Remainder of 2020$620  
20211,240  
20221,240  
20231,240  
20241,240  
20251,240  
Thereafter2,276  
Total$9,096  
6.DEBT

7. DEBT
Summary—ESH REIT’s outstanding debt, net of unamortized debt discount and unamortized deferred financing costs, as of SeptemberJune 30, 20172020 and December 31, 2016,2019, consists of the following (dollars in thousands):
 Stated
Amount		Carrying AmountUnamortized Deferred Financing Costs  
LoanJune 30, 2020December 31, 2019June 30, 2020December 31, 2019Stated Interest RateMaturity Date
Term loan facility
ESH REIT Term Facility$630,909  $624,359  
(1)
$627,368  
(1)
$8,356  $9,030  
LIBOR (2) + 2.00%
9/18/2026
(3)
Senior notes
2025 Notes1,300,000  1,293,644  
(4)
1,292,986  
(4)
13,643  15,055  5.25%5/1/2025
2027 Notes750,000  750,000  750,000  12,759  13,633  4.63%10/1/2027
Revolving credit facility
ESH REIT Revolving Credit Facility350,000  350,000  —  2,339  
(5)
2,606  
(5)
LIBOR (2) + 2.00%
9/18/2024
Unsecured intercompany facility
ESH REIT Intercompany Facility75,000  —  —  —  —  5.00%9/18/2026
Total$3,018,003  $2,670,354  $37,097  $40,324  
_________________________________ 
 
Stated
Amount(1)
 Carrying Amount Unamortized Deferred Financing Costs   Interest Rate   
Loan September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 Stated Interest Rate September 30, 2017 December 31, 2016 
Maturity
Date
 
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
         
                   
38
_________________________________ 
(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.
(2)ESH REIT is able to increase its borrowings under the 2016 ESH REIT Credit Facilities (as defined below) by an amount of up to $600.0 million, plus additional amounts, in each case subject to certain conditions.
(3)

(1)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.
(4)As of December 31, 2016, the stated interest rate of the 2016 Term Facility was LIBOR + 3.00% and included a LIBOR floor of 0.75%.
(5)$400.0 million of the 2016 Term Facility is subject to an interest rate swap at a fixed rate of 1.175% (see Note 7).
(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.
On March 1, 2017, ESH REIT entered intoTerm Facility (defined below) is presented net of an amendmentunamortized debt discount of $1.8 million and $2.0 million as of June 30, 2020 and December 31, 2019, respectively.
(2)As of June 30, 2020 and December 31, 2019, one-month LIBOR was 0.16% and 1.76%, respectively. As of June 30, 2020 and December 31, 2019, $150.0 million and $200.0 million, respectively, of the ESH REIT Term Facility was subject to an interest rate swap at a fixed rate of 1.175%.
(3)Amortizes in equal quarterly installments of $1.6 million. In addition to scheduled amortization, subject to certain exceptions, annual mandatory prepayments of up to 50% of Excess Cash Flow, as defined, may be required commencing with the year ending December 31, 2020. Annual mandatory prepayments for a given fiscal year are due during the first quarter of the following fiscal year.
(4)The 2025 Notes (defined below) are presented net of an unamortized discount of $6.4 million and $7.0 million as of June 30, 2020 and December 31, 2019, respectively.
(5)Unamortized deferred financing costs related to the 2016 Term Facility withrevolving credit facility are included in other assets in the lenders thereunder (such amendment, the "Repricing Amendment"). The Repricing Amendment had the following impact on the 2016 Term Facility: (i) decreased the interest rate spread on LIBOR based loans from 3.0% to 2.5%; (ii) decreased the interest rate spread on base rate loans from 2.0% to 1.5%; (iii) removed the floor of 0.75% on LIBOR based loans; (iv) removed the floor of 2.0% on base rate loans; (v) removed ranges on interest rate spreads for all loan types that were dependent upon ESH REIT’s credit rating; and (vi) extended the 1% prepayment penalty through September 1, 2017 (prepayments made after September 1, 2017 are not subject to a prepayment penalty, other than customary “breakage” costs).accompanying consolidated balance sheets.
ESH REIT Credit Facilities
On August 30, 2016, ESH REIT entered into aREIT’s credit agreement, as may be amended and supplemented from time to time, providingprovides for senior secured credit facilities (collectively, the "2016 ESH“ESH REIT Credit Facilities"Facilities”) consistingwhich consist of a $1,300.0$630.9 million senior secured term loan facility (the "2016“ESH REIT Term Facility"Facility”) and a $350.0 million senior secured revolving credit facility (the "2016 ESH“ESH REIT Revolving Credit Facility"Facility”). Subject to the satisfaction of certain criteria, borrowings under the 2016 ESH REIT Credit Facilities may be increased by an amount of up to $600.0 million, plus additional amounts, so long as, after giving effect to the incurrence of such incremental facility and the application of proceeds thereof, itsESH REIT’s pro-forma senior loan-to-value ratio is less than or equal to 45%.

Obligations under the 2016 ESH REIT Credit Facilities are guaranteed by certain existing and future material domestic subsidiaries ofTerm Facility—The ESH REIT other than those owning real property, subject to customary exceptions. Obligations under the 2016 ESH REIT Credit Facilities are secured, subject to certain exceptions, including an exception for real property, by a first-priority security interest in substantially all of the assets of ESH REIT and the guarantors.

The 2016 ESH REIT Credit Facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to incur additional debt, modify existing debt, create certain liens, pay dividends and distributions, make certain investments and other restricted payments, enter into affiliate transactions, amend or modify certain material operating leases and management agreements, sell assets or merge, consolidate or transfer all or substantially all of their assets. The 2016 ESH REIT Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and certain material operating leases and management agreements. If an event of default occurs, the administrative agent is entitled to take various actions, including the acceleration of amounts due under the 2016 ESH REIT Credit Facilities and additional actions that a secured creditor is permitted to take following a default. As of September 30, 2017, ESH REIT was in compliance with all covenants under the 2016 ESH REIT Credit Facilities.
2016 Term Facility—The 2016 Term Facility, as amended, bears interest at a rate equal to (i) LIBOR plus 2.50%1.75% for any period during which ESH REIT maintains a public corporate family rating better than or equal to BB (with a stable or better outlook) from S&P and Ba3 (with a stable or better outlook) from Moody’s (a “Level 1 Period”) or LIBOR plus 2.00% for any period other than a Level 1 Period; or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50% or (C) the one-month adjusted LIBOR rate plus 1.00%), plus 1.50%.0.75% during a Level 1 Period or 1.00% for any period other than a Level 1 Period. The 2016ESH REIT Term Facility amortizes in equal quarterly installments in annual amounts of 1.0% of the principal amount outstanding as of the Repricing Amendment, or approximately $13.0 million, with the remaining balance payable at maturity.$1.6 million. In addition to scheduled amortization, subject to certain exceptions, annual mandatory prepayments of up to 50% of annual Excess Cash Flow, as defined, may be required based on ESH REIT's Consolidated Leverage Ratio, each as defined. Annual mandatory prepayments are due during the first quarter of the following year. The 2016 Term Facility matures on August 30, 2023.
required. ESH REIT has the option to voluntarily prepay outstanding loans under the 2016ESH REIT Term Facility at any time upon three business days’ prior written notice for LIBOR loans or on one business day’s prior written notice for base rate loans. In addition to customary "breakage" costs with respect to LIBOR loans, amounts refinanced, substituted or replaced by indebtedness which has a lower all-in yield than the all-in yield under the 2016 Term Facility on or prior to September 1, 2017 (other than as a result of a transformative transaction) are subject to a prepayment penalty equal to 1.00% of the aggregate principal amount refinanced, substituted or replaced. Prepayments made after September 1, 2017 are not subject to a prepaymentwithout penalty.

2016 ESH REIT Revolving Credit Facility—The 2016Borrowings under the ESH REIT Revolving Credit Facility provides for the issuance of up to $50.0 million of letters of credit. Borrowings under the facility bear interest at a rate equal to (i) LIBOR plus a spread that ranges from 2.25%1.50% to 2.75%2.00% based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined, or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50%, or (C) the one-month adjusted LIBOR rate plus 1.00%) plus a spread that ranges from 1.25%0.50% to 1.75%1.00% based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined. There is no scheduled amortization under the 2016 ESH REIT Revolving Credit Facility and the facility matures on August 30, 2021.

In addition to paying interest on outstanding principal, ESH REIT incurs a fee of 0.35%0.30% or 0.175% on the unutilized revolver balance, based on the amount outstanding under the facility.balance. ESH REIT is also required to pay customary letter of credit fees and agency fees. The ESH REIT Revolving Credit Facility provides for the issuance of up to $50.0 million of letters of credit. As of SeptemberJune 30, 2017,2020, ESH REIT had no0 letters of credit outstanding and no available borrowing capacity under the facility, an outstanding balance of $0 andfacility.
In March 2020, ESH REIT borrowed the full available borrowing capacity of $350.0 million.

million under the ESH REIT Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in business markets resulting from the COVID-19 pandemic. These proceeds may in the future be used for working capital, general corporate or other purposes permitted under the agreement.
The 2016 ESH REIT Revolving Credit Facility is subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45% when the aggregate principal amount of borrowings and letters of credit under the 2016 ESH REIT Revolving Credit Facility, excluding up to $30.0 million of letters of credit, is equal to or greater than 25%35% of the aggregate available principal amount of the 2016 ESH REIT Revolving Credit Facility on the applicable fiscal quarter end date.
ESH REIT Senior2025 Notes Due 2025
In May 2015 and March 2016, ESH REIT issued $500.0 million and $800.0 million, respectively, of its 5.25% senior notes due in May 2025 (together with the $800.0 million of additional notes discussed below, the(the “2025 Notes”) under an indenture (the “Indenture”) with Deutsche Bank Trust Company Americas, as trustee, at 100% of par value in a private placementplacements pursuant to Rule 144A of the Securities Act ("Rule 144A"). In March 2016, ESH REIT issued an additional $800.0 million of the 2025 Notes under the Indenture at 98.5% of par value in a private placement pursuant to Rule 144A. The 2025 Notes mature on May 1, 2025 and bear interest at a fixed rate of 5.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year.

The 2025 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the 2016 ESH REIT Credit Facilities. The 2025 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2025 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
1933, as amended. ESH REIT may redeem the 2025 Notes at any time on or after May 1, 2020, in whole or in part, at a redemption price equal to 102.625% of the principal amount, declining annually to 100% of the principal amount from May 1, 2023 and thereafter, plus accrued and unpaid interest. Prior to May 1, 2020, ESH REIT may redeem the 2025 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a "make-whole"“make-whole” premium, as defined, plus accrued and unpaid interest. Upon a Change of Control, as defined,
39

holders of the 2025 Notes have the right to require ESH REIT to redeem the 2025 Notes at 101% of the principal amount, plus accrued and unpaid interest.
ESH REIT 2027 Notes
In September 2019, ESH REIT issued $750.0 million of its 4.625% senior notes due in 2027 (the “2027 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, at a price equal to 100% of par value in a private placement pursuant to Rule 144A of the Indenture,Securities Act of 1933, as amended. ESH REIT may redeem the 2027 Notes at any time on or after October 1, 2022, in whole or in part, at a redemption price equal to 102.313% of the principal amount, declining annually to 100% of the principal amount from October 1, 2024 and thereafter, plus accrued and unpaid interest. Prior to MayOctober 1, 2018,2022, ESH REIT may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium, as defined, plus accrued and unpaid interest. Prior to October 1, 2022, subject to certain conditions, ESH REIT may redeem up to 35% of the aggregate principal amount of the 20252027 Notes at a redemption price equal to 105.250%101% of the aggregate principal amount, thereof, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings, provided 65% of the original amount of the principal remains outstanding after the occurrence of each such redemption. Upon a Change of Control, as defined, holders of the 20252027 Notes have the right to require ESH REIT to redeem the 20252027 Notes at 101% of the principal amount, plus accrued and unpaid interest.
The Indenture contains a number of customary covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to incur additional debt, create certain liens, pay dividends or distributions, make certain investments and other restricted payments, enter into affiliate transactions, sell assets or merge, consolidate or transfer all or substantially all of their assets. The Indenture also contains certain customary events of default, including, but not limited to, cross-defaults to certain other indebtedness. If an event of default occurs, the holders of the Notes and the Trustee are entitled to take various actions, including declaring the 2025 Notes immediately due and payable. As of September 30, 2017, ESH REIT was in compliance with all covenants set forth in the Indenture.
Unsecured Intercompany Facility
OnIn August 30, 2016, ESH REIT, as borrower, and the Corporation, as lender, entered into an unsecured intercompany credit facility, as may be amended and supplemented from time to time (the "Unsecured“ESH REIT Intercompany Facility"Facility”). Under the ESH REIT Intercompany Facility, ESH REIT may borrow up to $300.0 million, plus additional amounts, in each case subject to certain conditions. Loans under the ESH REIT Intercompany Facility bear interest at an annual rate of 5.0%. ESH REIT has the option to prepay outstanding balances under the facility without penalty. As of SeptemberJune 30, 2017,2020 and December 31, 2019, the amount outstanding under the facility totaled $50.0 million. Subject to certain conditions,was $0.
Covenants
The ESH REIT Credit Facilities, the principal amount of2027 Notes, the Unsecured2025 Notes, and the ESH REIT Intercompany Facility may be increased up to an amount that shall not exceed the greater of (i) $300.0 million and (ii) an unlimited amount so long as the incremental loan-to-value ratio, determined on a pro-forma basis as of the last day of the most recently ended test period, as if any incremental loans available under such incremental commitments had been outstanding on the last day of such period, and, in each case, without netting the cash proceeds of any such incremental loans, does not exceed 5.0%. Loans under the facility bear interest at 5.00% per annum. There is no scheduled amortization under the facility and the facility matures on August 30, 2023. ESH REIT has the option to voluntarily prepay outstanding loans at any time upon one business day’s prior written notice.

The Unsecured Intercompany Facility containscontain a number of restrictive covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to incur additional debt, modify existing debt, createengage in certain liens, pay dividends or distributions, maketransactions. In addition, the ESH REIT Revolving Credit Facility contains a financial covenant that, subject to certain investments and other restricted payments, enter into affiliate transactions, amend or modifyconditions, requires compliance with a certain material operating leases and managementsenior loan-to-value ratio. The agreements sell assets or merge, consolidate or transfer all or substantially all of their assets. The facility containsgoverning ESH REIT’s indebtedness also contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and, in the case of the ESH REIT Credit Facilities and the ESH REIT Intercompany Facility, certain material operating leases and management agreements. If an event of default occurs, the Corporation is entitled to take various actions, including the acceleration of amounts due under the facility and all other actions that a creditor is permitted to take following a default. As of SeptemberJune 30, 2017,2020, ESH REIT was in compliance with all covenants under its debt agreements.
ESH REIT’s continued compliance with these covenants could be impacted by current or future economic conditions associated with the Unsecured Intercompany Facility.COVID-19 pandemic. ESH REIT's failure to maintain compliance with its debt covenants or to pay debt obligations as they become due would give rise to a default under one or more of the agreements governing its indebtedness, and could entitle the lenders under the defaulted agreements to accelerate the maturity of the amounts thereunder, which could raise substantial doubt about ESH REIT's ability to continue as a going concern. ESH REIT may seek covenant waivers or amendments, though there is no certainty that it would be successful in such efforts.

Future Maturities of DebtInterest Expense, net—The future maturitiescomponents of debt as of Septembernet interest expense during the three and six months ended June 30, 2017,2020 and 2019, are as follows (in thousands):
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
 
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Contractual interest, net (1)
$31,361  $28,622  $62,451  $57,197  
Amortization of deferred financing costs and debt discount2,024  1,969  4,046  3,939  
Other costs (2)
57  359  319  714  
Interest income(245) (683) (1,191) (1,649) 
Total$33,197  $30,267  $65,625  $60,201  
______________________
(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.
(1)Net of capitalized interest of $0.7 million, $0.4 million, $1.6 million and $0.8 million, respectively.
(2)Includes interest expense on finance leases (see Note 11) and unused facility fees.
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Fair Value of Debt—As of SeptemberJune 30, 20172020 and December 31, 2016,2019, the estimated fair value of ESH REIT’s debt was approximately$2.9 billion and $2.7 billion.billion, respectively. Estimated fair values are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on ESH REIT’s debt (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available.
7.DERIVATIVE INSTRUMENTS
ESH REIT from timeavailable, to time uses derivative instruments to manage its exposure to interest rate and foreign currency exchange rate risks. ESH REIT’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes instated interest rates and foreign currency exchange rates.spreads on ESH REIT’s derivatives expose it to credit risk todebt. As of June 30, 2020 and December 31, 2019, the extent that the counterparties may be unable to meet the termsestimated fair value of the agreement. ESH REIT seeksRevolving Credit Facility is equal to mitigate such risks by limiting its counterpartiescarrying value due to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.its short-term nature and frequent settlement.
In September 2016,
8. DERIVATIVE INSTRUMENTS
ESH REIT entered intois a counterparty to a floating-to-fixed interest rate swap at a fixed rate of 1.175% and a floating rate of one-month LIBOR subject to a LIBOR floor of 0.75%, to manage its exposure to interest rate risk on a portion of its variable rate debt. In February 2017,the ESH REIT executed an amendment to its swap agreement, the impact of which was to remove the LIBOR floor on floating rate cash flows.Term Facility. The notional amount of the interest rate swap as of SeptemberJune 30, 20172020 was $400.0$150.0 million. On March 30, 2018, theThe notional amount decreases to $350.0 million, and the notional amount continues to decrease by an additional $50.0 million every six months until the swap'sswap’s maturity in September 2021.
From September 2016 throughFor the February 2017 amendment to ESH REIT's swap agreement, the swap was designated as an effective cash flow hedgethree and changes in fair value were recognized through accumulated other comprehensive income. Concurrent with the February 2017 swap amendment and through April 2017, the swap's designation as a cash flow hedge was reversed and changes in fair value were recognized in earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. In April 2017,six months ended June 30, 2020, ESH REIT re-designatedpaid interest of $0.3 million and received proceeds of less than $0.1 million, respectively, and for the swap as an effective cash flow hedge. Subsequent to April 2017, the effective portionthree and six months ended June 30, 2019, ESH REIT received proceeds of changes in fair value are recognized through accumulated other comprehensive income$0.8 million and the ineffective portion is recognized in other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations. Prior changes recognized through accumulated other comprehensive income are amortized over the remaining life of the swap through earnings and are included in the line item other non-operating income (expense) on the accompanying unaudited condensed consolidated statements of operations.$1.8 million, respectively, that offset interest expense. As of SeptemberJune 30, 2017, approximately $1.12020, $1.0 million of interest expense is expected to be recognized through earnings over the following twelve months.

The table below presents the amounts and classification on ESH REIT's financial statements related toof the interest rate swap on ESH REIT’s condensed consolidated financial statements (in thousands):
 Other AssetsAccumulated other comprehensive income, net of tax Other 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   $—
 $—
(Accrued liabilities) other assetsAccumulated other comprehensive (loss) income, net of taxInterest expense (income), net
As of June 30, 2020$(1,170) $(1,171) 
(1)
As of December 31, 2019$831  $830  
(2)
For the three months ended June 30, 2020$250  
For the three months ended June 30, 2019$(821) 
For the six months ended June 30, 2020$(7) 
For the six months ended June 30, 2019$(1,797) 

(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.
(1)Changes during the six months ended June 30, 2020, on a pre-tax basis, consisted of changes in fair value of $(2.0) million.
8.INCOME TAXES
(2)Changes during the year ended December 31, 2019, on a pre-tax basis, consisted of changes in fair value of $(5.0) million.
9. INCOME TAXES
ESH REIT has elected to be taxed and expects to continue to qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"(“the Code”). A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding net capital gain, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and generally would be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.
ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Accordingly, ESH REIT expects to distribute approximately 100% of its taxable income for the foreseeable future.
ESH REIT recorded a provision for state and foreign income taxes of approximately $0.2less than $0.1 million, an effective tax rate of 0.1%, for each of the three and six months ended SeptemberJune 30, 2017, an effective rate of approximately 0.7%, as compared with a provision of approximately $0.7 million for the three months ended September 30, 2016, an effective rate of approximately 2.8%.2020 and 2019. ESH REIT recorded a provision for state and foreign incomes taxes of approximately $0.4 million for the nine months ended September 30, 2017, an effective rate of approximately 5.4%, as compared with a benefit of approximately $3.1 million for the nine months ended September 30, 2016, an effective rate of approximately (18.5)%. ESH REIT’s effectivetax rate differs from the federal statutory rate of 35% primarily21% due to ESH REIT’sREIT's status as a REIT under the provisions of the Code. During the three months ended September 30, 2016, ESH REIT recognized a discrete provision to return adjustment of approximately $0.5 million. During the nine months ended September 30, 2016, ESH REIT recognized a benefit of approximately $0.8 million related to current state and foreign payable adjustments and a benefit of approximately $2.3 million with respect to the reversal of net deferred tax liabilities which related to the previously estimated 5% of taxable income expected to be retained by ESH REIT under its prior 95% distribution policy, which was changed during the three months ended March 31, 2016.code.
ESH REIT’s income tax returns for the years 20132016 to present are subject to examination by the Internal Revenue Service and other taxing authorities. As of June 30, 2020, a subsidiary of ESH REIT was under examination by the Canadian Revenue Agency for the tax years 2014 through 2017. As the audit is still in process the timing of the resolution and any payments that may be required cannot be determined at this time. ESH REIT believes that, to the extent a liability may exist, it is appropriately reserved as of June 30, 2020.
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9.RELATED PARTY TRANSACTIONS

10. RELATED PARTY TRANSACTIONS
Revenues and Overhead Expenses
Leases and Rental Revenues—For the periodAll revenues are generated as a result of, and earned from, May 1, 2017 through September 30, 2017, ESH REIT’s revenues were derived from three leases. Prior to the sale of its Canadian hotels in May 2017, ESH REIT's revenues were derived from four leases.3 operating leases with related parties. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed and variable rental revenues are recognized on a straight-line basis. Forfor the three and six months ended SeptemberJune 30, 20172020 and 2016,2019 are as follows (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Fixed rental revenues$119,486  $118,005  $238,676  $236,010  
Variable rental revenues(1)
—  97  —  97  
_________________________________ 
(1)Regardless of whether cash rental payments are received, ESH REIT recognized fixed rental revenues of

approximately $114.7 million and $116.4 million, respectively. Foronly recognizes revenue when a lessee’s revenue exceeds specific thresholds stated in the nine months ended September 30, 2017 and 2016, ESH REIT recognized fixed rental revenues of approximately $346.4 million and $348.9 million, respectively. Due to the fact that percentagelease. Variable rental revenue thresholds specified in the leases were not achieved during the secondthree and third quarters of 2017 and 2016, ESH REIT recognized approximately $28.7 million and $36.8 million of percentage rental revenues during the threesix months ended SeptemberJune 30, 20172020.
Each lease agreement has a five-year term that expires in October 2023 and 2016, respectively,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 approximately $28.9 million and $37.0 million during the nine months ended September 30, 2017 and 2016, respectively.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$234,900  
2021482,706  
2022494,828  
2023422,453  
Total$1,634,887  
Overhead Expenses—ESA Management LLC, a wholly-owned subsidiary of theThe Corporation incurs costs under a services agreement withbetween the Corporation and ESH REIT for certain overhead services performed on the entities'each entities’ behalf. The services relate to executive management, accounting, financial analysis, training and technology. For the three and six months ended SeptemberJune 30, 2017 and 2016,2020, ESH REIT incurred approximately $2.4 million and $2.1$5.3 million, respectively, related to this agreement and for the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2019, ESH REIT incurred approximately $7.4$2.3 million and $6.7$4.8 million, respectively, related to this agreement, which is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The expenses ESH REIToperations, related to these services. Expenses incurred under this services agreement also include expenses related to applicablecertain employees that participate in the Corporation’s long-term incentive plan (as described in Note 11).plan. Such charges were approximately $0.6$0.3 million and $0.5 million for the three and six months ended SeptemberJune 30, 2017 and 2016,2020, respectively, and $1.6$0.3 million and $1.4$0.6 million for the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2019, respectively.
Debt and EquityCapital Transactions
Share Repurchases—DuringCorporation Intercompany Facility—In July 2020, the nine months ended September 30, 2017,Corporation, as borrower, and ESH REIT, repurchased and retired 2.0as lender, entered into an unsecured credit facility, under which the Corporation may borrow up to $150.0 million Class B common shares from the Selling Stockholders for approximately $12.2 million. These shares were purchased in connection with the secondary offerings consummated in the first and second quarters of 2017 and pursuant to, and counted toward, the combined Paired Share repurchase program.ESH REIT (see Note 12).
Senior Notes Due 2025—In March 2016, in connection with ESH REIT's $800.0 million issuance of its 2025 Notes discussed in Note 6, an affiliate of one of the Former Sponsors acted as an initial purchaser and purchased and resold $24.0 million of the 2025 Notes. As such, the affiliate of one of the Former Sponsors earned approximately $0.4 million in fees related to the transaction during the three months ended March 31, 2016.
UnsecuredREIT Intercompany Facility—Facility—As of SeptemberJune 30, 2017, the2020 and December 31, 2019, there were 0 outstanding balancebalances owed by ESH REIT to the Corporation under the UnsecuredESH REIT Intercompany Facility, was $50.0 million.and ESH REIT incurred 0 interest expense during the three and six months ended June 30, 2020 and 2019 related to the ESH REIT Intercompany Facility. ESH REIT is able to increase its borrowingsborrow under the UnsecuredESH REIT Intercompany Facility to an amount of up to $300.0 million, plus additional amounts, in each case subject to certain conditions (see Note 6)7).
Distributions—During the three and ninesix months ended SeptemberJune 30, 2017, ESH REIT incurred approximately $0.6 million and $1.9 million, respectively, in interest expense related to the Unsecured Intercompany Facility.
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 three and nine months ended September 30, 2017,2020, ESH REIT paid distributions of approximately$2.5 million and $37.6 million, respectively, and during the three and six months ended June 30, 2019, ESH REIT paid distributions of $35.1 million and $107.7$72.6 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT. During the three and nine months ended September 30, 2016, ESH REIT paid distributions of approximately $25.0 million and $147.8 million (of which approximately $47.6 million had been declared as of December 31, 2015), respectively, to the Corporation in respect of the Class A common stock of ESH REIT.
Issuance of Common Stock—In September 2017,March 2020 and 2019, ESH REIT issued and was compensated approximately $0.2$0.7 million and $1.2 million, respectively, for approximately 26,000the 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. In March 2017,units (“RSUs”).
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As of June 30, 2020, the Corporation has granted a total of 1.1 million RSUs, whereby as a counterparty to these outstanding RSUs, ESH REIT issuedis expected to issue and wasbe compensated approximately $1.7in cash for 1.1 million for approximately 283,000 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. In September 2016, ESH REIT issued approximately 25,000 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. ESH REIT was compensated approximately $0.2 million for the issuance of these shares in the fourth quarter of 2016. In March 2016, ESH REIT issuedfuture periods, assuming market-based awards vest at 100% and was compensated approximately $1.1 million for approximately 199,000 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.no forfeitures.

Related Party Balances
Related party transaction balances as of SeptemberJune 30, 20172020 and December 31, 2016,2019, include the following (in thousands):
September 30,
2017		 December 31,
2016		June 30,
2020		December 31,
2019
Leases:   Leases:
Rents receivable(1)
$21,993
 $2,609
Rents receivable(1)
$13,056  $1,572  
Deferred rents receivable(2)
$28,192
 $40,259
Deferred rents receivable(2)
$33,950  $28,917  
Unearned rental revenues(1)
$(192,124) $(39,898)
Unearned rental revenues(1)
$(70,528) $(38,770) 
   
Debt:   
Loan payable (Unsecured Intercompany Facility)(3)
$(50,000) $(50,000)
   
Working capital and other:   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)
Ordinary working capital(3)
Ordinary working capital(3)
$(7,343) $(12,160) 
Equity awards receivable(4)
Equity awards receivable(4)
82  322  
Total working capital and other, net(5)
Total working capital and other, net(5)
$(7,261) $(11,838) 
______________________
(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.
(2)Represents rental revenues recognized in excess of cash rents received. Amount will decrease over lease terms to zero.
(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).
(4)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.
(5)Represents amounts related to restricted stock units not yet settled or issued.
(6)Outstanding balances are typically repaid within 30 days.
(1)Rents receivable relate to percentage rents. As of June 30, 2020, unearned rental revenues related to July 2020 fixed minimum rent of $39.0 million and percentage rent of $31.5 million. As of December 31, 2019, unearned rental revenues related to January 2020 fixed minimum rent.
10.COMMITMENTS AND CONTINGENCIES
(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.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments—ESH REIT is a tenant under long-term ground leases at four5 of its hotel properties. The initial termsNaN of thethese leases are operating leases and 2 are finance leases. The ground lease agreements terminate at various dates between 20212023 and 2096 and three leasesseveral of the agreements include multiple renewal options for generally five or 10ten year periods. Rent expense onAs ESH REIT is reasonably certain that it will exercise the options to extend its ground leases, is recognized on a straight-line basisfixed payments associated with the extensions are included in the measurement of related right-of-use assets and was approximately $0.4 million for eachlease liabilities. Additionally, as of the three months ended SeptemberJune 30, 2017 and 2016, and approximately $1.1 million for each of the nine months ended September 30, 2017 and 2016. Ground2020, ESH REIT leased certain technology equipment located at its hotel sites under finance leases.
Operating lease expense iscosts related to ground leases are included in hotel operating expenses in the accompanying unaudited condensed consolidated statements of operations.
Other Commitments—ESH REIT has a commitment to make quarterly payments in lieu of taxes to the owner of the land on which one of its properties is located. The initial term of the agreement terminates in 2031. The cost related to this commitment was approximately $0.1 million for each of the three months ended September 30, 2017 and 2016, respectively, and approximately $0.2 million for each of the nine months ended September 30, 2017 and 2016, respectively, and is Finance lease interest costs are included in hotel operating expensesinterest expense, net in the accompanying unaudited condensed consolidated statements of operations.operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the condensed consolidated balance sheets (see Note 5). No amortization costs were incurred during the three and six months ended June 30, 2020 and 2019 for finance leases pertaining to land or land in development. ESH REIT has no variable lease costs or short-term leases.
For the three and six months ended June 30, 2020 and 2019, components of ESH REIT’s total lease costs are as follows (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Operating lease costs$327  $327  $653  $652  
Finance lease costs80  61  146  122  
Total lease costs$407  $388  $799  $774  

43

ESH REIT’s right-of-use assets and lease liabilities are as follows (in thousands):
June 30, 2020December 31, 2019
Right-of-use assets:
Operating(1)
$1,740  $2,084  
Finance(2)
4,415  3,979  
Lease liabilities:
Operating(3)
9,128  9,207  
Finance3,767  3,379  

(1)Included in other assets on the accompanying condensed consolidated balance sheets.
(2)Included in property and equipment, net on the accompanying condensed consolidated balance sheets.
(3)Included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.
Maturities of lease liabilities as of June 30, 2020, are as follows (in thousands):
Years Ending December 31,Operating LeasesFinance Leases
Remainder of 2020$392  $307  
2021784  738  
2022806  397  
2023552  400  
2024503  402  
2025503  429  
Thereafter77,091  2,671  
Total$80,631  $5,344  
Total discounted lease liability$9,128  $3,767  
Difference between undiscounted cash flows and discounted cash flows$71,503  $1,577  
Weighted-average remaining lease term59 years11 years
Weighted-average discount rate6.6 %6.7 %
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 June 30, 2020, ESH REIT does not have any 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 of ESH REIT.its business. ESH REIT believes that the results of all claimslitigation and litigation,claims, individually or in the aggregate, will not have a material adverse effect on its business or unaudited condensed consolidated financial statements.statements, its business, results of operations and financial condition.
11.EQUITY-BASED COMPENSATION
The 12. SUBSEQUENT EVENTS
Corporation Intercompany Facility
In July 2020, the Corporation, as borrower, and ESH REIT, each maintain a long-term incentive plan (“LTIP”), as amended and restated in 2015, approved by their shareholders.lender, entered into an unsecured credit facility (the "Corporation Intercompany Facility"). Under the LTIPs,Corporation Intercompany Facility, the Corporation andmay borrow up to $150.0 million. Loans under the facility bear interest at an annual rate of 4.5%. In addition to paying interest on outstanding principal, the Corporation is required to pay a commitment fee to ESH REIT may issue to eligible employees or directors restricted stock awards ("RSAs"), restricted stock units ("RSUs") or other equity-based awards, in respect of Paired Shares, with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be0.25% on the subject of awardsunutilized facility balance. There is no scheduled amortization under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Eachfacility and the facility matures on July 2, 2025. Obligations under the Corporation Intercompany Facility and guarantees thereof are unsecured and fully subordinated to the obligations of the Corporation’s and ESH REIT’s LTIPCorporation under the Corporation Revolving Credit Facility. The Corporation has a share reserve of an equivalent number of shares of Corporation

common stock and ESH REIT Class B common stock.the option to prepay outstanding balances under the facility without penalty. As of September 30, 2017, approximately 3.8 million Paired Shares were available for future issuanceAugust 10, 2020, the outstanding balance under the LTIPs.facility was $0.
Equity-based compensation expense is recognized by amortizing the grant-date fair value of the equity-based awards, less estimated forfeitures, on a straight-line basis over the requisite service period of each award. The grant-date fair value of equity-based awards is based on the closing price of a Paired Share on the date of grant. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Expense related to the portion of the grant-date fair value with respect to a share of Corporation common stock is recorded as a payable due to the Corporation. Expense related to the portion of the grant-date fair value with respect to a share of ESH REIT Class B common stock is recorded as an increase to additional paid in capital. During the three and nine months ended September 30, 2017, ESH REIT incurred approximately $0.1 million and $0.3 million, respectively, of equity-based compensation expense related to its equity-based awards. During the three and nine months ended September 30, 2016, ESH REIT incurred approximately $0.6 million and $1.5 million, respectively, of equity-based compensation expense related to its equity-based awards.
44
As of September 30, 2017, there was approximately $0.4 million of unrecognized compensation expense related to outstanding equity-based awards, which is expected to be recognized subsequent to September 30, 2017 over a weighted-average period of approximately 0.9 years. Total unrecognized compensation expense will be adjusted for actual forfeitures.


ESH REIT will have to pay more or less for a share of the Corporation common stock than it would have otherwise paid at the time of grant as the result of regular market changes in the value of a Paired Share between the time of grant and the time of settlement. An increase in the value allocated to a share of Corporation common stock due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as a distribution to the Corporation. A decrease in the value allocated to a share of Corporation common stock due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as additional paid in capital from the Corporation.Revolving Credit Facility Repayment

The Corporation accounts for awards issued under its LTIP in a manner similar to ESH REIT. For all LTIP awards granted by the Corporation,On August 6, 2020, ESH REIT will receive compensation forrepaid the fair value of$350.0 million outstanding balance under the Class B shares on the date of settlement of such Class B shares by ESH REIT.REIT Revolving Credit Facility. As of September 30, 2017,August 10, 2020, the Corporation has granted a total of approximately 3.2 million service-based, performance-based and market-based RSUs, of which approximately 1.3 million RSUs were either forfeited or settled. As a counterparty to these outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for approximately 1.9 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.balance under the facility was $0.
RSA/RSU activity during the nine months ended September 30, 2017, was as follows:Distribution
 
Number of
RSAs/RSUs
(in thousands)
 
Weighted-
Average
Grant-Date
Fair 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
12.SUBSEQUENT EVENTS
On November 7, 2017,August 10, 2020, the Board of Directors of ESH REIT declared a cash distribution of $0.10$0.01 per share for the thirdsecond quarter of 20172020 on its Class A and Class B common stock. TheThis distribution is payable on December 5, 2017September 8, 2020 to shareholders of record as of November 21, 2017.August 25, 2020.
In OctoberCOVID-19 Pandemic Update
ESH REIT’s business and November 2017,operational outlook is expected to continue to be materially negatively impacted by the COVID-19 pandemic, specifically its ability to generate percentage rental revenues under its leases due to material decreases in hotel revenues of the Operating Lessees, the impact of which will hinder the ability to predict future results. As the pandemic evolves, ESH REIT executed two purchasecontinues to assess the pandemic's impact on its operations and sale agreementsfinancial condition. While ESH REIT continues to divest twenty-six Extended Stay America-branded hotels for approximately $128.5 million, subjectevaluate the ability of its portfolio of hotel assets to adjustment. These transactions are expectedgenerate, sustain and increase cash flow, it also continues to closemonitor its tenants’ (i.e., the Operating Lessees’) ability to navigate industry, market and overall economic conditions, including their ability to provide timely and complete rental payments. ESH REIT may implement changes to its current and future business strategies as a result of the volatility related to COVID-19, with a focus on balancing the preservation of liquidity with other balance sheet considerations, such as necessary capital expenditures and reductions in 2018 uponleverage. As of July 31, 2020, ESH REIT had unrestricted cash and subject to the completioncash equivalents of customary due diligence and the satisfaction or waiver of certain closing conditions.$630.8 million.

45

Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements of Extended Stay America, Inc. (the "Corporation") and ESH Hospitality, Inc. ("ESH REIT"), included in Item 1 inof this combined quarterly report on Form 10-Q.
Background and Certain Defined Terms
The following defined terms relate to theour corporate structure of the Corporation and ESH REIT, company-wide initiatives and/or lodging industry operating metrics. Unless otherwise indicated or the context requires:
•ADR or average daily rate means hotel room revenues divided by total number of rooms sold in a given period.
•Company means the Corporation, ESH REIT and their subsidiaries considered as a single enterprise.
•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%59% of the outstanding common stock of ESH REIT.
•ESA Management means ESA Management LLC, a Delaware limited liability company and wholly-owned subsidiary of the Corporation, and its subsidiaries, which manage theExtended Stay America-branded hotel properties on behalf of the Operating Lessees.
Lessees and third parties.
•ESH REIT means ESH Hospitality, Inc., a Delaware corporation that has elected to be taxed as a real estate investment trust (“REIT”), and its subsidiaries. ESH REIT is a majority-owned subsidiary of the Corporation, which leases all of its hotel properties to the Operating Lessees.
•ESH Strategies means ESH Hospitality Strategies LLC, a Delaware limited liability company and wholly-owned subsidiary of the Corporation, and one of its subsidiaries, ESH Strategies Branding LLC, a Delaware limited liability company, which ownowns the intellectual property related to our business.
businesses and licenses it to the Operating Lessees and ESH Strategies Franchise (as defined below).
•ESH Strategies Franchise means ESH Strategies Franchise LLC, a Delaware limited liability company and wholly-owned subsidiary of ESH Strategies, that licenses the Extended Stay America brand name from ESH Strategies and in-turn relicenses it to third-party franchisees.
•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.
•Mid-price extended stay segment means the segment of the extended stay market that generally operates at a daily rate, prior to the COVID-19 pandemic, between $55 and $105.
•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.
•Operating Lessees means the several wholly-owned subsidiaries of the Corporation that each lease a group of hotels from subsidiaries of ESH REIT and as stipulated under the respective lease agreement, operate the Company-owned hotels.
•Paired Share means one share of common stock, par value $0.01 per share, of the Corporation together with one share of Class B common stock, par value $0.01 per share, of ESH REIT, which are attached and trade as a single unit.
•RevPAR or Revenue Perper 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, WiFi upgrade, telephone or other guest service revenues.

For ease of presentation:
When we refer to our ownership of hotel properties, we•System-wide hotels means all hotels that are referring tooperated under the hotel propertiesExtended Stay America brand and that are 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 hotelsfranchised and/or managed by the Operating Lessees.Company. As of June 30, 2020, there were 636 system-wide hotels.
When we refer to our•Third-party intermediaries are unaffiliated distribution channels that sell hotel inventory, including ours, for a fee on the internet. Third-party intermediaries currently include Expedia.com and Booking.com (and their respective affiliated brands we are referring to intellectual property related to our business owned by ESH Strategies.and distribution channels, such as Priceline, Hotwire, Kayak and Trivago) and may in the future include search engines such as Google and alternative lodging suppliers such as Airbnb and HomeAway.
When we refer to our management team, executives or officers, we are referring to the management team, executives and officers of the Corporation and ESH REIT.
The following discussion may contain forward-looking statements regarding our ability to meet our debt service obligations, future capital expenditures (including future hotel renovation programs), distribution policies, growth opportunities, anticipated benefits or use of proceeds from any dispositions, plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position and our business outlook, business trends, among other topics.statements. Actual results may differ materially from those suggested by ourany forward-looking statements for various reasons, including those discussed in “Risk Factors” in our combined annual report onthe 2019 Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2017,in “Item 1A. Risk Factors” contained in this quarterly report, and “Cautionary Note Regarding Forward-Looking
46

Statements” contained herein. Those sections expressly qualify any subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf.
We present below separate results of operations for each of the Company and ESH REIT. Our assets and operations, other than ownership of our real estate assets, (whichwhich are owned by ESH REIT),REIT, are held directly by the Corporation and operated as an integrated enterprise.Corporation. The Corporation owns all of the issued and outstanding shares of Class A common stock of ESH REIT, representing approximately 57%59% of the outstanding common stock of ESH REIT. Due to its controlling interest in ESH REIT, the Corporation consolidates the financial position, results of operations, comprehensive income and cash flows of ESH REIT.
Overview
We are the largest integrated owner/operator of company-branded hotels in North America. Our business operates in the extended stayextended-stay segment of the lodging industry, and aswe have the following reportable operating segments:
•Owned Hotels—Earnings are derived from the operation of September 30, 2017, we owned and operated 625Company-owned hotel properties comprising approximately 68,800 rooms located in 44 states acrossand include room and other hotel revenues, which accounted for 98.0% of total revenues for the United States. We currently operate allthree and six months ended June 30, 2020.
•Franchise and management—Earnings are derived from fees under various franchise and management agreements with third parties, which accounted for 2.0% of our hotels under our core brand,total revenues for the three and six months ended June 30, 2020. These contracts provide us the ability to earn compensation for licensing the Extended Stay America which serves the mid-price extended stay segment, and accounts for approximately 46% of the segment by number of rooms in the United States.brand name, providing access to shared system-wide platforms and/or management services.
Our extended stayExtended Stay America-branded hotels are designed to provide an affordable and attractive alternative to traditional lodging or apartment accommodations and are targeted toward self-sufficient, value-conscious guests. Our hotels feature fully-furnished rooms with in-room kitchens, complimentary grab-and-go breakfast, free WiFi, flat screen TVs and on-site guest laundry. Our guests who need lodging for more than a week. Guests include business travelers, leisure travelers, professionals on temporary work or training assignments, persons relocating, the temporarily displaced, orthose purchasing a home and anyone else in need of temporary housing. Our guests generally rent accommodations on a weekly
As of June 30, 2020, we owned and operated 561 hotel properties in 40 U.S. states, consisting of approximately 62,400 rooms, and franchised or longer term basis. Formanaged 75 hotel properties for third parties, consisting of approximately 7,700 rooms. All 636 system-wide hotels operate under the Extended Stay America brand, which serves the mid-price extended stay segment and accounts for approximately 41% of the segment by number of rooms in the United States ("U.S.").
RevPAR for owned hotels was $38.96 and $42.09 for the three and six months ended June 30, 2020, respectively, and $55.63 and $51.94 for the three and six months ended June 30, 2019, respectively. RevPAR for comparable system-wide hotels, which includes hotels owned, franchised or managed for the full three and six months ended June 30, 2020 and 2019, respectively, was $38.38 and $41.18 for the three and six months ended June 30, 2020, respectively, and $53.84 and $50.29 for the three and six months ended June 30, 2019, respectively.
During the trailing twelve months ended SeptemberJune 30, 2017, approximately 37.0%2020, 34.1%, 22.0%20.9% and 41.0%45.0% of our totalowned hotel room revenues were derived from guests with stays from 1-6 nights, from 7-29 nights and for 30 or more nights, respectively.
We use a central reservation system to provide access to our hotel inventory through a wide variety of channels, including property-direct, our central call center, our desktop and mobile websites, travel agency global distribution systems and wholesale and online travel agents. We outsource our reservation system, call center and management of our website. For the trailing twelve months ended SeptemberJune 30, 2017, approximately 31.6%2020, 24.4% of our totalowned hotel room revenues waswere derived from property-direct reservations, approximately 24.5% was29.2% were derived from our central call center, approximately 16.5% was20.1% were derived from our own proprietary website, approximately 23.0% was23.6% were derived from online travel agentsthird party intermediaries and approximately 4.4% was2.7% were derived from travel agencyagencies using global distribution systems.
During the trailing twelve months ended June 30, 2020, 52.7% of our franchise and management fees and related revenues were derived from franchising activities and 47.3% were derived from management activities. Franchisees typically pay an initial application fee, along with monthly royalty and system service fees for the licensing of our brand and the use of our shared system-wide platforms, such as marketing, technology infrastructure, central reservations, national sales and revenue management systems. The standard term for our franchise agreements is generally 20 years.
We seek to drive our competitive advantage by becoming a dominant brand with national distribution. We focus on continually improvingtargeting our product and service improvingoffering to an underserved customer base within the lodging industry and the extended stay segment, and by driving economies of scale through our national distribution and concentration of hotels in individual markets. As the only major hotel company focused solely on the extended stay segment, we focus on operational excellence in our core business, which consists of a focus on property operations and the delivery of a consistent, quality guest experience. Operational excellence also includes a focus on our efficient, scalable marketing efforts and sales platform to achieve the most effective use of commercial distribution channels we have identified as the most successful in driving ADR.additional targeted guests into our hotels. In addition to owning and operating hotels, with great locations, affordable priceswe have increased, and relevant amenities, we intend to buildcontinue to increase, our fee-based income stream, which we receive when we franchise our brand to third parties and, franchisein certain instances, manage hotels with these same characteristics. A key componenton behalf of our strategy includes increasingfranchisees. Additionally, we seek to maximize the total number of Extended Stay Americavalue

47

branded hotels, which we expect will include owned and franchised hotel properties. Combined with our current business model, which we believe maximizes cost efficiency, and our efficient capital structure, our primary objective is to drive superior cash flow while ultimately seeking to return value to our shareholders.
Duringincrease the second quarter of 2017, we completed a hotel renovation program which began in 2011 and included eachoverall quality of our 625 hotels. In orderreal estate portfolio by selling non-strategic hotels over time and in certain instances franchise our brand to achieve our strategic objectives, ourthose buyers.

Our current and future plans include some or all the following:
Performing•continuing to invest capital in our hotels on an ongoing basis and through future cyclical hotel renovations at our hotel properties;where justified by anticipated returns on investment;
Repurposing and/or rebuilding certain of our hotel properties;
Building•constructing new Extended Stay America hotel properties which we expect to own and operate;
Divesting certain•extracting value from our real estate portfolio through the sale of ournon-strategic hotels to franchisees which we expect will remain underbuyers that may franchise the Extended Stay America brand from us and for whichwhom we may perform management and/or other services;
Converting•franchising the Extended Stay America brand to newly constructed hotels built and owned by third parties for whom we may perform management 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•repurposing and/or other services;rebuilding certain of our hotel properties; and
Acquiring•exploring acquisitions of additional hotel properties and/or other lodging companies.
In October 2016,Recent Updates
COVID-19 Pandemic
During the Corporationthree and ESH REIT executedsix months ended June 30, 2020, primarily as a purchaseresult of the COVID-19 pandemic, the Company experienced material adverse declines in RevPAR due to ADR and sale agreement to divestoccupancy, net (loss) income, Adjusted EBITDA and cash flow from operations. For the three Extended Stay Canada-brandedmonths ended June 30, 2020, the Company’s RevPAR and Adjusted EBITDA declined 30.0% and 51.6%, respectively, compared with the three months ended June 30, 2019. For the six months ended June 30, 2020, the Company's RevPAR and Adjusted EBITDA declined 19.0% and 36.2%, respectively, compared with the six months ended June 30, 2019.
Based on a preliminary assessment of our results of operations for the month ended July 31, 2020, we experienced a decline in RevPAR of 19.3% on a comparable system-wide basis, which includes 626 hotels owned, franchised or managed by the Company for 76.0 million Canadian dollars. In March 2017, ESH REIT executed a purchasethe months ended July 31, 2020 and sale agreement to divest one U.S.-based hotel for approximately $5.4 million. These transactions closed in May 2017 and2019. Although the Corporation and ESH REIT recognized a net loss on these salesJuly 2020 RevPAR decline was not as severe as declines we experienced each month during the ninethree months ended June 30, 2020, it represents a decline which negatively impacted our results of operations. We expect a decline in total revenues and income from operations in the three months ended September 30, 2017 of approximately $1.9 million2020, compared with the three months ended September 20, 2019, in addition to declines in RevPAR and $3.3 million, respectively.     
Also in October 2016,Adjusted EBITDA. Similarly, it is likely that ESH REIT executedwill experience a purchasematerial decline in percentage rental payments, rental revenues and sale agreementincome from operations in the three months ended September 30, 2020, compared with the three months ended September 30, 2019. Our third quarter results are not complete and performance for the remainder of the third quarter is subject to divestrisks and uncertainties, in particular the ongoing impact of the COVID-19 pandemic, which could cause actual third quarter results to deviate materially adversely from current trends or estimates. In such event, the Company does not expect to, and undertakes no obligation to, announce changes in its expectations or estimates prior to the announcement of actual third quarter results. See "Part I. Item 1A. Risk Factors" in the 2019 Form 10-K, as well as "Item 1A. Risk Factors" below.
As a result of the pandemic and its impact on our business, we have focused on attracting guests staying for one week or longer, which has proven more resilient to-date than the broader lodging industry. Additionally, we have de-emphasized or delayed certain of our strategies in order to reduce costs, conserve financial and employee resources, and maintain short, medium and long-term liquidity. While the evolution and resulting impact of this pandemic is highly uncertain, we believe our business model has been resilient in absorbing the impact of the COVID-19 pandemic compared to the broader lodging industry. Once the COVID-19 pandemic and its effects subside, we expect to refocus on our current and future plans to grow and improve our brand to drive shareholder value. See "Item 1A. Risk Factors."
Hotel Acquisitions and New Hotel Openings
The table below summarizes hotel acquisitions and owned, newly constructed hotel openings during the six months ended June 30, 2020 and the year ended December 31, 2019. All hotels were converted or opened under the Extended Stay America-branded hotel for approximately $44.8 million, subject to adjustment. This transaction is expected to close upon and subject toAmerica brand.
48

DateLocationNumber of
Hotels		Number of
Rooms		Acquisition /
New-Build
November 2019Florida1121Acquisition
December 2019Florida1124New-Build
December 2019Arizona1136New-Build
March 2020Florida1120New-Build
April 2020South Carolina1120New-Build
June 2020Georgia1124New-Build
June 2020Texas1124New-Build
Hotel Pipeline
As of June 30, 2020, the completionCompany had a pipeline of customary due diligence and69 hotels, which consisted of the satisfaction or waiver of certain closing conditions.following:
In October and November 2017, ESH REIT executed two purchase and sale agreements to divest twenty-six Extended Stay America-branded hotels for approximately $130.4 million, including approximately $1.9 million in initial franchise application fees, subject to adjustment.
Company-Owned Pipeline & Recently Opened Hotels as of June 30, 2020
Under OptionPre-DevelopmentUnder ConstructionTotal PipelineOpened YTD
# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms
——45047888111,3924488
Third-Party Pipeline & Recently Opened Hotels as of June 30, 2020
CommitmentsApplicationsExecutedTotal PipelineOpened YTD
# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms# Hotels# Rooms
273,3484464273,184586,9962205

Definitions
Under OptionLocations with a signed purchase and sale agreement
Pre-DevelopmentLand purchased, permitting and/or site work
Under ConstructionHotel is under construction
CommitmentsSigned commitment to build or convert a certain number of hotels by a third party, generally associated with a prior portfolio sale
ApplicationsThird party filed franchise application with deposit
ExecutedFranchise and development application approved, geography identified and deposits paid, various stages of pre-development and/or construction
The Company expects to manage twenty-fivedelay commencement of construction of three pre-development locations as a result of current market uncertainty. We also expect delays in certain third-party pipeline activity. The length of such delays and severity of the hotels. These transactions are expected to close in 2018 uponimpact on our business, including our financial position, results of operations and subject to the completion of customary due diligence and the satisfaction or waiver of certain closing conditions.liquidity, is highly uncertain.









49

Understanding Our Results of Operations—The Company
Revenues and Expenses. The Company’s revenues are derived from hotel ownership and operations. Hotel operating expenses account for the largest portion of the Company’s operating expenses and reflect ongoing expenses associated with the ownership and operation of our hotels.
The following table presents the components of the Company’s revenues as a percentage of our total revenues for the ninesix months ended SeptemberJune 30, 2017:
2020:
Percentage of
2017 2020 Year to
Date
Total Revenues
•     Room revenues. Room revenues relate to owned hotels and are driven primarily by ADR and occupancy. Pricing policy and customer mix are significant drivers of ADR. DueRoom revenues and similar measures or metrics are presented and/or discussed with respect to our relatively high occupancy levels, our primary focus isowned hotels only as opposed to 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.a system-wide basis. System-wide hotels include all owned, franchised and/or managed hotels.
98.3%95.4%
•     Other hotel revenues. Other hotel revenues relate to owned hotels and 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 our other hotel revenues. We experienced an increase in
2.6%
•     Franchise and management fees. Franchise and management fees include royalty and other fees charged to third party hotel owners for use of our brand name and hotel management services. The substantial majority of these fees are based on a percentage of revenues of approximately $1.9 millionthe franchised or managed hotels.
0.5%
•     Other revenues from franchised and managed properties. Other revenues from franchised and managed properties include the direct reimbursement of specific costs, such as on-site personnel, incremental reservation costs and other distribution costs, incurred by us for which we are reimbursed on a dollar-for-dollar basis by third party hotel owners. Additionally, these revenues include fees charged, based on a percentage of revenue of the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to increases in guest purchased Wifi upgradesfranchised hotel, as reimbursement for indirect costs incurred by us associated with certain shared system-wide platforms (i.e., system services), such as marketing, technology infrastructure, central reservations, national sales and smoking, parking, and pet fee revenues.revenue management systems.
1.7%1.5%
The following table presents the components of the Company’s operating expenses as a percentage of our total operating expenses for the ninesix months ended SeptemberJune 30, 2017:
2020:
Percentage of
2017 2020 Year to
Date
Total Operating
Expenses
•     Hotel operating expenses. Hotel operating expenses relate to owned hotels and have both fixed and variable components. Operating expenses that are relatively fixed include personnel expense, real estate tax expense and property insurance premium expense.premiums. 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%63.9%
•     General and administrative expenses. General and administrative expenses include expenses associated with corporate overhead. These costsCosts consist primarily of compensation expense of our corporate staff, which includesincluding equity-based compensation and severance costs, and professional fees, including audit, tax legal and consulting fees.fees, legal fees and legal settlement costs.
10.6%10.8%
•     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.renovations and other capital expenditures.
24.3%23.3%
•     Impairment of long-lived assets. assets. Impairment of long-lived assets is a non-cash charge recognized when events and circumstances indicate that the carrying value of a real estate asset, including an individual hotel asset or a group of hotel assets, may not be recoverable. The estimation and evaluation of future cash flows, which is a key factor in determining the amount and/or timing of impairment charges, in particular the holding period for real estate asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating and economic performance and current and future market conditions. It is possible that such judgments and/or estimates will change; if this occurs, we may recognize additional impairment charges reflecting either changes in estimate, circumstance or the estimated market value of our assets.
2.9%0.2%
•     Other expenses from franchised and managed properties. Other expenses from franchised and managed properties include specific costs, such as on-site hotel personnel expense, incremental reservation costs and other distribution costs, incurred by us in the delivery of services for which we are reimbursed on a dollar-for-dollar basis. Additionally, these expenses include costs associated with shared system-wide platforms (i.e., system services), such as marketing, technology infrastructure, central reservations, national sales and revenue management systems for which we are reimbursed over time through system service (i.e., program) fees.
1.8%



50

Understanding Our Results of Operations—ESH REIT
Revenues. ESH REIT's sole source of revenues is lease rental revenues. ESH REIT’s rental revenues are generated from leasing its hotel properties.properties to subsidiaries of the Corporation. Rental revenues consist of fixed minimum rental payments recognized on a straight-line basis over the lease terms plus variable rental payments based on specified percentages of total hotel revenues over designated thresholds.
Expenses. The following table presents the components of ESH REIT’s operating expenses as a percentage of ESH REIT’s total operating expenses for the ninesix months ended SeptemberJune 30, 2017:
2020:
Percentage of
2017 2020 Year to
Date
Total Operating
Expenses
•    Hotel operating expenses. ESH REIT’s hotel operating expenses include expenses directly related to hotel ownership, of the hotels, such as real estate tax expense, property insurance premiums and loss on disposal of assets and property insurance premium and claims expense.certain capital assets.
26.1%30.6%
•    General and administrative expenses. General and administrative expenses include overhead expenses incurred directly by ESH REIT and certain administrative service costs reimbursed to ESA Management.the Corporation.
4.7%5.1%
•     Depreciation.Depreciation is a non-cash charge that relatesand amortization. Depreciation and amortization relate 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.renovations and other capital expenditures.
63.6%63.9%
•     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 a real estate asset, including an individual hotel asset or a group of hotel assets, may not be recoverable. The estimation and evaluation of future cash flows, which is a key factor in determining the amount and/or timing of impairment charges, in particular the holding period for real estate asset composition and/or concentration within real estate portfolios, relies on judgments and assumptions regarding holding period, current and future operating and economic performance and current and future market conditions. It is possible that such judgments and/or estimates will change; if this occurs, we may recognize additional impairment charges reflecting either changes in estimate, circumstance or the estimated market value of our assets.
5.6%0.4%

Results of Operations
Results of Operations discusses the Company’s and ESH REIT’s unaudited condensed consolidated financial statements, each of which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those relating to property and equipment, goodwill, revenue recognition, income taxes, equity-based compensation and investments. We base our estimates and judgments on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Thecondensed consolidated financial statements of the Company include the financial position, results of operations, comprehensive income, changes in equity and cash flows of the Corporation and its subsidiaries, including the Operating Lessees, ESH Strategies, ESA Management and ESH REIT. Third partyThird-party equity interests in ESH REIT, which consist primarily of the Class B common stock of ESH REIT and represent approximately 43%41% of ESH REIT’s total common equity, are not owned by the Corporation and therefore are presented as noncontrolling interests.
The condensed consolidated financial statements of ESH REIT include the financial position, results of operations, comprehensive income, changes in equity and cash flows of ESH REIT and its subsidiaries.
51

Results of Operations—The Company
As of June 30, 2020, the Company owned and operated 561 hotels, consisting of approximately 62,400 rooms, and franchised or managed 75 hotels for third parties, consisting of approximately 7,700 rooms. As of June 30, 2019, the Company owned and operated 554 hotels, consisting of approximately 61,500 rooms, and franchised or managed 74 hotels for third parties, consisting of approximately 7,600 rooms.
Comparison of Three Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
As of September 30, 2016, we owned and operated 629 hotels, consisting of approximately 69,400 rooms. In May 2017, we sold three Extended Stay Canada-branded hotels and one additional U.S.-based hotel. As a result, as of September 30, 2017, we owned and operated 625 hotels, consisting of approximately 68,800 rooms. The following table presents ourthe Company's consolidated results of operations for the three months ended SeptemberJune 30, 20172020 and 2016,2019, including the amount and percentage change in these results between the periods (in thousands):

Three Months Ended
June 30,
20202019Change ($)Change (%)
Revenues:
Room revenues$219,851  $311,614  $(91,763) (29.4)%
Other hotel revenues6,320  6,070  250  4.1%
Franchise and management fees1,218  1,447  (229) (15.8)%
227,389  319,131  (91,742) (28.7)%
Other revenues from franchised and managed properties3,445  4,526  (1,081) (23.9)%
Total revenues230,834  323,657  (92,823) (28.7)%
Operating Expenses:
Hotel operating expenses133,435  146,907  (13,472) (9.2)%
General and administrative expenses23,103  22,287  816  3.7%
Depreciation and amortization51,042  49,017  2,025  4.1%
Impairment of long-lived assets675  —  675  n/a
208,255  218,211  (9,956) (4.6)%
Other expenses from franchised and managed properties4,083  4,996  (913) (18.3)%
Total operating expenses212,338  223,207  (10,869) (4.9)%
Other income1  1  —  0.0%
Income from operations18,497  100,451  (81,954) (81.6)%
Other non-operating income(302) (171) (131) 76.6%
Interest expense, net33,621  29,766  3,855  13.0%
Income before income tax (benefit) expense(14,822) 70,856  (85,678) (120.9)%
Income tax (benefit) expense(6,052) 11,198  (17,250) (154.0)%
Net (loss) income(8,770) 59,658  (68,428) (114.7)%
Net income attributable to noncontrolling interests(1)
(3,593) (6,161) 2,568  (41.7)%
Net (loss) income attributable to Extended Stay America, Inc. common shareholders$(12,363) $53,497  $(65,860) (123.1)%
________________________
(1)Noncontrolling interests in Extended Stay America, Inc. include 41% and 43% of ESH REIT’s common equity as of June 30, 2020 and 2019, respectively, and 125 shares of ESH REIT preferred stock.
 Three Months Ended
September 30,		 
 
 2017 2016 Change ($) 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 %
52
________________________________ 
(1)

Noncontrolling interests in Extended Stay America, Inc. include approximately 43% and 45% of ESH REIT’s common equity as of September 30, 2017 and 2016, respectively.
The following table presents key operating metrics, including occupancy, ADR, RevPAR and hotel inventory and renovation displacement data for ourthe Company's owned hotels for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively:
Three Months Ended
June 30,
20202019Change
Number of hotels (as of June 30)5615547
Number of rooms (as of June 30)62,42161,552869
Occupancy68.7%79.9%(1,120) bps
ADR$56.68$69.65(18.6)%
RevPAR$38.96$55.63(30.0)%
 Three Months Ended September 30,  
 2017 2016 Change
Number of hotels (as of September 30)(1)
625 629 (4)
Number of rooms (as of September 30)(1)
68,780 69,383 (603)
Occupancy79.0% 79.4% (40) bps
ADR$69.01 $68.84 0.2%
RevPAR$54.55 $54.65 (0.2)%
Hotel Inventory (as of September 30)(2):
     
         Renovated Extended Stay America625 547
(3) 
78
         Unrenovated Extended Stay America and other— 82 (82)
Total number of hotels625 629 (4)
Renovation Displacement Data (in thousands, except percentages)(2):
     
         Total available room nights6,326 6,383 (57)
         Room nights displaced from renovation4 64 (60)
         % of available room nights displaced0.1% 1.0% (90) bps

(1)
In May 2017, the Company sold 4 hotels, three of which were included in “Renovated Extended Stay America” and one of which was included in “Unrenovated Extended Stay America and other” as of September 30, 2016.
(2)
See “—Liquidity and Capital Resources- Capital Expenditures- Hotel Renovation Program."
(3)
Includes three Extended Stay Canada-branded hotels that were sold.


Room revenues. Room revenues decreased by approximately $4.0$91.8 million, or 1.1%29.4%, to approximately $345.1$219.9 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $349.1$311.6 million for the three months ended SeptemberJune 30, 2016.  The2019, due to a 30.0% decrease in RevPAR as a result of a 18.6% decrease in ADR and a 1,120 basis point decrease in occupancy due to material business disruption as a result of the COVID-19 pandemic. We anticipate that continued disruption resulting from the COVID-19 pandemic, as well as changes in customer behavior, will result in a material adverse decrease in room revenues was primarily due tofor the saleyear ending December 31, 2020, compared with the year ended December 31, 2019. The length and severity of our three Extended Stay Canada-branded hotels and one additional hotel in May 2017.such impact is highly uncertain.
Other hotel revenues. Other hotel revenues increased by approximately $0.3$0.2 million, or 6.1%4.1%, to approximately $5.8$6.3 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $5.5$6.1 million for the three months ended SeptemberJune 30, 2016. This increase was mainly2019, due to an increase in WiFi upgrades purchasedreimbursements received from certain third-party intermediaries.
Franchise and management fees. Franchise and management fees decreased by guests.
Hotel operating expenses. Hotel operating expenses increased by approximately $2.3$0.2 million, or 1.5%15.8%, to approximately $152.2$1.2 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $149.9$1.4 million for the three months ended SeptemberJune 30, 2016. The increase in hotel operating expenses was partly2019, due to increasesa decline in personnel costs of approximately $2.1 million, marketing costs of approximately $0.9 million, repairrevenues at franchised and maintenance costs of $0.7 millionmanaged hotels due to the COVID-19 pandemic. We expect franchise and real estate taxes of $0.7 million. These increases were partially offset by decreasesmanagement fees to increase over time if additional franchised hotels open in insurance expense of $1.2 millionthe future.
Other revenues from franchised and utilities expense of approximately $0.8 million.
Generalmanaged properties. Other revenues from franchised and administrative expenses. General and administrative expensesmanaged properties decreased by approximately $0.8$1.1 million, or 3.2%23.9%, to approximately $23.8$3.4 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $24.6$4.5 million for the three months ended SeptemberJune 30, 2016. The2019, due to a decrease was drivenin direct reimbursable costs resulting from the termination of two management agreements in the third quarter of 2019.
Hotel operating expenses. Hotel operating expenses decreased by lower consulting and professional fees of approximately $0.9 million and lower secondary offering costs of approximately $0.3 million, partially offset by an increase in personnel costs of approximately $0.3 million.
Depreciation and amortization. Depreciation and amortization increased by approximately $1.4$13.5 million, or 2.4%9.2%, to approximately $57.3$133.4 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $56.0$146.9 million for the three months ended SeptemberJune 30, 2016, which2019. The decrease in hotel operating expenses was primarily due to an increasedeclines in investmentcertain variable costs, including reservation costs of $5.5 million related to a decrease in commissionable bookings through third-party intermediaries, hotel-level payroll expense of $3.3 million, credit card fees of $3.0 million, marketing costs of $2.3 million and $2.3 million in costs related to the temporary suspension of our grab-and-go breakfast. These decreases were partially offset by increases in allowance for uncollectible guest balances of $1.3 million, personal protective equipment and other safety related costs of $1.1 million and property insurance of $0.8 million. We currently anticipate that certain variable costs such as those noted above will decrease for the year ending December 31, 2020, partially due to increases in the average length of guest stays and a continued shift to less expensive reservation channels. We expect other variable costs, such as costs incurred for personal protective equipment and other related safety measures taken in response to the COVID-19 pandemic, as well as certain fixed operating expenses, such as property insurance, to increase. The potential impact of changes in hotel assets.operating expenses related to the COVID-19 pandemic is highly uncertain.
General and administrative expenses. General and administrative expenses increased by $0.8 million, or 3.7%, to $23.1 million for the three months ended June 30, 2020, compared to $22.3 million for the three months ended June 30, 2019, due to separation and corporate transition costs. The Company expects to defer certain general and administrative costs for the remainder of 2020 in response to the COVID-19 pandemic. As the length and severity of the COVID-19 pandemic is highly uncertain, while we expect a decline in certain general and administrative expenses, we are unable to determine the full impact for the year ending December 31, 2020.
Depreciation and amortization. Depreciation and amortization increased by $2.0 million, or 4.1%, to $51.0 million for the three months ended June 30, 2020, compared to $49.0 million for the three months ended June 30, 2019, due to a hotel acquisition and new hotel openings that occurred during the fourth quarter of 2019 and the first half of 2020.
53

Impairment of long-lived assets. Asset impairments are recorded as required based on an evaluation of property and equipment and intangible assets for impairment. During the three months ended SeptemberJune 30, 2016,2020, we recognized an impairment chargescharge of approximately $2.8$0.7 million related to one hotel property.an undeveloped land parcel. No impairment charges were recognized during the three months ended SeptemberJune 30, 2017.2019.
Other income. During the three months ended September 30, 2017, we recognized other income of approximately $0.3 million, which mainly consisted of management fees related to our Canadian hotels sold in May 2017 pursuant to separate management agreements which are expected to terminate on or before March 31, 2018.
expenses from franchised and managed properties. Other non-operating expense. During the three months ended September 30, 2017, we recognized a non-cash foreign currency transaction gain of approximately $0.4 million, partially offset by non-cash charges related to our interest rate swap of approximately $0.1 million. During the three months ended September 30, 2016, we recognized a non-cash foreign currency transaction gain of approximately $0.3 million related to the depreciation of the U.S. dollar versus the Canadian dollar at our Canadian currency-based entities.
Interest expense, net. Net interest expenseexpenses from franchised and managed properties decreased by approximately $17.1$0.9 million, or 35.0%18.3%, to approximately $31.6$4.1 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $48.7$5.0 million for the three months ended SeptemberJune 30, 2016.2019, due to a decrease in direct costs resulting from the termination of two management agreements in the third quarter of 2019. We generally expect the cost to provide certain shared system-wide platforms to franchisees to be recovered through system service fees, which are included in other revenues from franchised and managed properties.
Other non-operating income. During the three months ended SeptemberJune 30, 2016,2020 and 2019, we incurred debt extinguishment costsrecognized a foreign currency transaction gain of approximately $14.1$0.3 million in connection withand $0.2 million, respectively, related to a mortgage loan repayment. The Company’s weighted-averageresidual Canadian dollar-denominated deposit as a result of the prior sale of Canadian hotels.
Interest expense, net. Net interest rate decreasedexpense increased by $3.9 million, or 13.0%, to approximately 4.5% as of September$33.6 million for the three months ended June 30, 20172020, compared to approximately 4.6% as of September$29.8 million for the three months ended June 30, 2016. Additionally,2019, due to an increase in the Company’sCompany's total debt outstanding debt balance decreased from approximately $2.6to $3.0 billion, net of unamortized deferred financing costs and debt discounts, as of SeptemberJune 30, 20162020, compared to approximately $2.5$2.4 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2019. In March 2020, the Company borrowed $399.8 million under revolving credit facilities and in September 2019, ESH REIT issued $750.0 million of its 2027 Notes and repaid $500.0 million of the ESH REIT Term Facility. The Company’s weighted-average interest rate decreased to 4.5% as of June 30, 2017.2020 compared to 4.8% as of June 30, 2019, due to a decline in LIBOR. Interest expense, net is expected to increase for the year ending December 31, 2020, due to the increase in total debt outstanding.
Income tax (benefit) expense. Our We recorded a benefit for federal, state, and foreign income taxes of $6.1 million, an effective income tax rate increased by approximately 1.7 percentage points to approximately 23.5%of 40.8%, for the three months ended SeptemberJune 30, 20172020, compared to approximately 21.8%a provision of $11.2 million, an effective tax rate of 15.8%, for the three months ended SeptemberJune 30, 2016.2019. The Company’s effective tax rate is lower thandiffers from the federal statutory rate of 35%21% primarily due to ESH REIT’s status as a REIT under the provisions of the Internal Revenue Code and the passage of 1986 (as amended, the “Code”Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) during these periods. The increase in our effective income, which provides the Company the ability to carry back and utilize projected federal tax losses to higher tax rate for the three months ended September 30, 2017 is primarily due to the fact that during the three months ended September 30, 2016, the Company recognized a benefit of approximately $0.8 million with respect to the reversal of a net deferred tax liability related to the Corporation's anticipated receipt of future ESH REIT nontaxable distributions in addition to discrete provision to return adjustments of approximately $2.0 million recognized upon filing of an income tax return.years.

54

Comparison of NineSix Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
As of September 30, 2016, we owned and operated 629 hotels consisting of approximately 69,400 rooms. In May 2017, we sold three Extended Stay Canada-branded hotels and one additional U.S.-based hotel. As a result, as of September 30, 2017, we owned and operated 625 hotels, consisting of approximately 68,800 rooms. The following table presents ourthe Company's consolidated results of operations for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, including the amount and percentage change in these results between the periods (in thousands):
Six Months Ended
June 30,
20202019Change ($)Change (%)
Revenues:
Room revenues$474,315  $578,660  $(104,345) (18.0)%
Other hotel revenues13,088  11,373  1,715  15.1%
Franchise and management fees2,497  2,672  (175) (6.5)%
489,900  592,705  (102,805) (17.3)%
Other revenues from franchised and managed properties7,235  8,621  (1,386) (16.1)%
Total revenues497,135  601,326  (104,191) (17.3)%
Operating Expenses:
Hotel operating expenses278,730  284,198  (5,468) (1.9)%
General and administrative expenses47,041  45,314  1,727  3.8%
Depreciation and amortization101,562  97,795  3,767  3.9%
Impairment of long-lived assets675  —  675  n/a
428,008  427,307  701  0.2%
Other expenses from franchised and managed properties8,290  9,643  (1,353) (14.0)%
Total operating expenses436,298  436,950  (652) (0.1)%
Other income3  28  (25) (89.3)%
Income from operations60,840  164,404  (103,564) (63.0)%
Other non-operating expense (income)401  (349) 750  (214.9)%
Interest expense, net66,306  59,370  6,936  11.7%
Income before income tax (benefit) expense(5,867) 105,383  (111,250) (105.6)%
Income tax (benefit) expense(4,942) 17,321  (22,263) (128.5)%
Net (loss) income(925) 88,062  (88,987) (101.1)%
Net income attributable to noncontrolling interests(1)
(6,884) (12,631) 5,747  (45.5)%
Net (loss) income attributable to Extended Stay America, Inc. common shareholders$(7,809) $75,431  $(83,240) (110.4)%
 Nine Months Ended September 30,    
 2017 2016 Change ($) 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 %
________________________
________________________________ 
(1)
Noncontrolling interests in Extended Stay America, Inc. include approximately 43% and 45% as of September 30, 2017 and 2016, respectively.

(1)Noncontrolling interests in Extended Stay America, Inc. include 41% and 43% of ESH REIT’s common equity as of June 30, 2020 and 2019, respectively, and 125 shares of ESH REIT preferred stock.
The following table presents key operating metrics, including occupancy, ADR, RevPAR and hotel inventory and renovation displacement data for ourthe Company's owned hotels for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively:

Six Months Ended
June 30,
20202019Change
Number of hotels (as of June 30)5615547
Number of rooms (as of June 30)62,42161,552869
Occupancy70.1%75.7%(560) bps
ADR$60.07$68.64(12.5)%
RevPAR$42.09$51.94(19.0)%
 Nine Months Ended September 30,  
 2017 2016 Change
Number of hotels (as of September 30)(1)
625 629 (4)
Number of rooms (as of September 30)(1)
68,780 69,383 (603)
Occupancy76.1% 75.2% 90 bps
ADR$67.15 $67.09 0.1%
RevPAR$51.13 $50.47 1.3%
Hotel Inventory (as of September 30)(2):
     
         Renovated Extended Stay America625 547
(3) 
78
         Unrenovated Extended Stay America and other— 82 (82)
Total number of hotels625 629 (4)
Renovation Displacement Data (in thousands, except percentages) (2):
     
         Total available room nights18,845 19,015 (170)
         Room nights displaced from renovation101 243 (142)
         % of available room nights displaced0.5% 1.3% (80) bps
_________________________________ 
(1)
In May 2017, the Company sold 4 hotels, three of which were included in “Renovated Extended Stay America” and one of which was included in “Unrenovated Extended Stay America and other” as of September 30, 2016.
(2)
See “— Liquidity and Capital Resources - Capital Expenditures - Hotel Renovation Program."
(3)
Includes three Extended Stay Canada-branded hotels that were sold.
Room revenues. Room revenues increaseddecreased by approximately $3.5$104.3 million, or 0.4%18.0%, to approximately $963.5$474.3 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $960.0$578.7 million for the ninesix months ended SeptemberJune 30, 2016.  The increase in room revenues was primarily2019, due to a 90 bps increase19.0% decrease in occupancy, resulting in a 1.3% increase in RevPAR. These increases were primarilyRevPAR as a result of an increase in shorter-stay business and leisure guests, the collective impact of our recently completed hotel renovation program and focus on service excellence. This increase was partially offset by a 12.5% decrease in revenuesADR and a 560 basis point decline in occupancy due to material business disruption as a result of the saleCOVID-19 pandemic. We anticipate that continued disruption resulting from the COVID-19 pandemic, as well as changes
55

in customer behavior, will result in a material adverse decrease in room revenues for the year ending December 31, 2020, compared with the year ended December 31, 2019. The length and severity of our three Extended Stay Canada-branded hotels and one additional hotel in May 2017.such impact is highly uncertain.
Other hotel revenues. Other hotel revenues increased by approximately $1.9$1.7 million, or 12.8%15.1%, to approximately $16.7$13.1 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $14.8$11.4 million for the ninesix months ended SeptemberJune 30, 2016. This increase was mainly2019, due to ansystem and process improvements that improved billing efficiency as well as reimbursements received from certain third-party intermediaries.
Franchise and management fees. Franchise and management fees decreased by $0.2 million, or 6.5%, to $2.5 million for the six months ended June 30, 2020, compared to $2.7 million for the six months ended June 30, 2019, due to a decline in revenues at franchised and managed hotels due to the COVID-19 pandemic. We expect franchise and management fees to increase over time if additional franchised hotels open in WiFi upgrades purchased purchasedthe future.
Other revenues from franchised and managed properties. Other revenues from franchised and managed properties decreased by guests and smoking, parking and pet fee revenues.$1.4 million, or 16.1%, to $7.2 million for the six months ended June 30, 2020, compared to $8.6 million for the six months ended June 30, 2019, due to a decrease in direct reimbursable costs resulting from the termination of two management agreements in the third quarter of 2019.
Hotel operating expenses. Hotel operating expenses decreased by approximately $1.8 million$5.5 million, or 0.4%1.9%, to approximately $442.7$278.7 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $444.5$284.2 million for the ninesix months ended SeptemberJune 30, 2016.2019. The decrease in hotel operating expenses was partlyprimarily due to a decreasedeclines in certain variable costs, including reservation costs of approximately$7.1 million, credit card fees of $3.8 million, marketing costs of $2.5 million and $2.2 million whichin costs related to a decrease in commissionable bookings through certain online travel agents as well as a shift in booking channels used bythe temporary suspension of our guests, and decreases in utilities expense of approximately $1.7 million, maintenance expense of approximately $1.1 million and amenity costs of approximately $1.0 million.grab-and-go breakfast. These decreases were partially offset by an increaseincreases in personnelallowance for uncollectible guest balances of $2.6 million, property insurance of $1.6 million, loss on disposal of assets of $1.6 million, hotel-level payroll expense of approximately $2.6$1.5 million, real estate tax expense of $1.4 million and personal protective equipment and other safety related costs of $1.2 million. We currently anticipate that certain variable costs such as those noted above, as well as an increasehotel-level payroll expense, will decrease for the year ending December 31, 2020, partially due to increases in credit card disputesthe average length of approximately $1.7 million.guest stays and a continued shift to less expensive reservation channels. We expect other variable costs, such as costs incurred for personal protective equipment and other related safety measures taken in response to the COVID-19 pandemic, as well as certain fixed operating expenses, such as property insurance, to increase. The potential impact of changes in hotel operating expenses related to the COVID-19 pandemic is highly uncertain.
General and administrative expenses. General and administrative expenses increased by approximately $2.0$1.7 million, or 2.7%3.8%, to approximately $75.6$47.0 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $73.6$45.3 million for the ninesix months ended SeptemberJune 30, 2016.2019, due to separation and corporate transition costs. The increase was driven by an increaseCompany expects to defer certain general and administrative costs for the remainder of 2020 in personnel expenseresponse to the COVID-19 pandemic. As the length and severity of approximately $1.7 million, including equity-based compensation expense of approximately $0.4 million,the COVID-19 pandemic is highly uncertain, while we expect a decline in certain general and an increase in consulting and professional fees of approximately $1.1 million, including an increase in secondary offering costs of approximately $0.7 million.administrative expenses, we are unable to determine the full impact for the year ending December 31, 2020.
Depreciation and amortization. Depreciation and amortization increased by approximately $8.5$3.8 million, or 5.2%3.9%, to approximately $172.8$101.6 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $164.3$97.8 million for the ninesix months ended SeptemberJune 30, 2016,2019, due to a hotel acquisition and new hotel openings that occurred during the fourth quarter of 2019 and the first half of 2020.
Impairment of long-lived assets. During the six months ended June 30, 2020, we recognized an impairment charge of $0.7 million related to an undeveloped land parcel. No impairment charges were recognized during the six months ended June 30, 2019.
Other expenses from franchised and managed properties. Other expenses from franchised and managed properties decreased by $1.4 million, or 14.0%, to $8.3 million for the six months ended June 30, 2020, compared to $9.6 million for the six months ended June 30, 2019, due to a decrease in direct costs resulting from the termination of two management agreements in the third quarter of 2019. We generally expect the cost to provide certain shared system-wide platforms to franchisees to be recovered through system service fees, which was primarilyare included in other revenues from franchised and managed properties.
Other non-operating expense (income). During the six months ended June 30, 2020 and 2019, we recognized a foreign currency transaction loss of $0.4 million and gain of $0.3 million, respectively, related to a residual Canadian dollar-denominated deposit as a result of the prior sale of Canadian hotels.
Interest expense, net. Net interest expense increased by $6.9 million, or 11.7%, to $66.3 million for the six months ended June 30, 2020, compared to $59.4 million for the six months ended June 30, 2019, due to an increase in investment in hotel assets.

Impairment of long-lived assets. Asset impairments are recorded as required based on an evaluation of property and equipment and intangible assets for impairment. During the nine months ended September 30, 2017, we recognized impairment charges of approximately $20.4 million relatedCompany's total debt outstanding to property and equipment, $12.4 million of which related to our three Extended Stay Canada-branded hotels which were sold in May 2017. The additional $7.9 million in impairment charges related to two hotel properties. Impairment charges of $2.8 million were recognized during the nine months ended September 30, 2016.
Loss on sale of hotel properties. During the nine months ended September 30, 2017, we recognized a loss on sale of hotel properties of approximately $1.9 million related to the sale of three Extended Stay Canada-branded hotels in May 2017. No hotels were sold during the nine months ended September 30, 2016.
Other income. During the nine months ended September 30, 2017, we recognized other income of approximately $2.4 million, which consisted of the settlement of a lawsuit, the receipt of funds related to a temporary easement at one of our hotel properties and management fees related to the Canadian hotels sold in May 2017 pursuant to separate management agreements which are expected to terminate on or before March 31, 2018.
Other non-operating income. During the nine months ended September 30, 2017, we recognized a non-cash foreign currency transaction gain of approximately $0.8 million, partially offset by non-cash charges related to our interest rate swap of approximately $0.4 million. During the nine months ended September 30, 2016, we recognized a non-cash foreign currency transaction gain of approximately $1.1 million related to the depreciation of the U.S. dollar versus the Canadian dollar at our Canadian currency-based entities.
Interest expense, net. Excluding debt modification costs of approximately $1.2 million incurred during the nine months ended September 30, 2017 related to the repricing of ESH REIT's senior secured term loan facility, and excluding debt extinguishment costs of approximately $26.2 million incurred during the nine months ended September 30, 2016 related to the full repayment of the balance outstanding under ESH REIT’s previous term loan facility and the partial repayment of ESH REIT's previous mortgage loan, net interest expense decreased by approximately $9.5 million, or 9.0%, to approximately $95.8 million for the nine months ended September 30, 2017 compared to approximately $105.3 million for the nine months ended September 30, 2016. The Company’s weighted-average interest rate decreased to approximately 4.5% as of September 30, 2017 compared to approximately 4.6% as of September 30, 2016. Additionally, the Company’s total outstanding debt balance decreased from approximately $2.6$3.0 billion, net of unamortized deferred financing costs and debt discounts, as of SeptemberJune 30, 2016 2020, compared
56

to approximately $2.5$2.4 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2019. In March 2020, the Company borrowed $399.8 million under revolving credit facilities and in September 2019, ESH REIT issued $750.0 million of its 2027 Notes and repaid $500.0 million of the ESH REIT Term Facility. The Company’s weighted-average interest rate decreased to 4.5% as of June 30, 2017.2020, compared to 4.8% as of June 30, 2019, due to a decline in LIBOR. Interest expense, net is expected to increase for the year ending December 31, 2020, due to the increase in total debt outstanding.
Income tax (benefit) expense. Our We recorded a benefit for federal, state, and foreign income taxes of $4.9 million, an effective income tax rate increased by approximately 7.2 percentage points to approximately 23.6%of 84.2%, for the ninesix months ended SeptemberJune 30, 20172020, compared to approximatelya provision of $17.3 million, an effective tax rate of 16.4%, for the ninesix months ended SeptemberJune 30, 2016.2019. The Company’s effective tax rate is lower thandiffers from the federal statutory rate of 35%21% primarily due to ESH REIT’s status as a REIT under the provisions of the Internal Revenue Code during these periods. The increase in our effective incomeand the passage of the CARES Act, which provides the Company the ability to carry back and utilize projected federal tax losses to higher tax rate for the nine months ended September 30, 2017 is primarily due to the fact that during the nine months ended September 30, 2016, the Company recognized a benefit of approximately $8.5 million with respect to the reversal of a net deferred tax liability related to the Corporation's anticipated receipt of future ESH REIT nontaxable distributions and a benefit of approximately $1.8 million with respect to the reversal of net deferred tax liabilities which related to the previously estimated 5% of taxable income expected to be retained under ESH REIT's prior 95% distribution policy, which was changed during the three months ended March 31, 2016. In addition, the Company recognized a provision to return a benefit of approximately $2.0 million during the nine months ended September 30, 2016.years.

Results of Operations—ESH REIT
As of June 30, 2020, ESH REIT’s sole sourceREIT owned and leased 561 hotels, consisting of revenues is lease rental revenuesapproximately 62,400 rooms. As of June 30, 2019, ESH REIT owned and its hotel operating expenses reflect only those hotel operating expenses incurred directly related to ownershipleased 554 hotels, consisting of the hotels. Administrative costs reimbursed to ESA Management are included as a component of general and administrative expenses.approximately 61,500 rooms.
Comparison of Three Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
As of September 30, 2016, ESH REIT owned and leased 629 hotels, consisting of approximately 69,400 rooms. In May 2017, ESH REIT sold three Extended Stay Canada-branded hotels and one additional U.S.-based hotel. As a result, as of September 30, 2017, ESH REIT owned and leased 625 hotels, consisting of approximately 68,800 rooms. The following table presents ESH REIT’s consolidated results of operations for the three months ended SeptemberJune 30, 20172020 and 2016,2019, including the amount and percentage change in these results between the periods (in thousands): 

Three Months Ended
June 30,
20202019Change ($)Change (%)
Revenues- Rental revenues from Extended Stay America, Inc.
$119,486  $118,102  $1,384  1.2%
Operating expenses:
Hotel operating expenses23,289  21,937  1,352  6.2%
General and administrative expenses3,769  3,544  225  6.3%
Depreciation and amortization50,127  48,132  1,995  4.1%
Impairment of long-lived assets675  —  675  n/a
Total operating expenses77,860  73,613  4,247  5.8%
Income from operations41,626  44,489  (2,863) (6.4)%
Other non-operating income(245) (134) (111) (82.8)%
Interest expense, net33,197  30,267  2,930  9.7%
Income before income tax expense8,674  14,356  (5,682) (39.6)%
Income tax expense9  7  2  28.6%
Net income$8,665  $14,349  $(5,684) (39.6)%
 Three Months Ended September 30,    
 2017 2016 Change ($) 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%
Rental revenues from Extended Stay America, Inc. Rental revenues decreasedincreased by approximately $9.7$1.4 million, or 6.4%1.2%, to approximately $143.4$119.5 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $153.1$118.1 million for the three months ended SeptemberJune 30, 2016.2019. The decreaseincrease in rental revenues was partly due to a decrease in fixed minimum rentsrent income related to a hotel acquisition and newly completed hotels during the salefourth quarter of 2019 and the three Extended Stay Canada-branded hotels and one additional hotel in May 2017. Percentagefirst half of 2020. No variable rental revenues decreased by approximately $8.1 million to approximately $28.7 millionwere recognized during the three months ended SeptemberJune 30, 2017 from approximately $36.82020, as minimum percentage rental revenue thresholds were not achieved during the period. Variable rental revenues of $0.1 million were recognized during the three months ended SeptemberJune 30, 2016.2019. Variable rental revenues are expected to materially decrease for the year ended December 31, 2020 as a result of a decline in Operating Lessee hotel revenues expected due to business disruption and changes in customer behavior resulting from the COVID-19 pandemic.
Hotel operating expenses. Hotel operating expenses increased by approximately $0.4$1.4 million, or 1.9%6.2%, to approximately $22.6$23.3 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $22.2$21.9 million for the three months ended SeptemberJune 30, 2016.2019. This increase was primarily due to an increaseincreases in real estate tax expense of approximately $0.9 million, partially offset by a decrease in the loss on disposal of assets of approximately $0.2$0.7 million and a decrease in property related costs that were obligations of ESH REIT due to its ownership of hotels, including property insurance claims, of approximately $0.2$0.5 million.
General and administrative expenses. General and administrative expenses increased by approximately $0.2 million, or 7.1%6.3%, to approximately $3.7$3.8 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $3.5 million for the three months ended SeptemberJune 30, 2016. The increase was mainly2019, due to an increase in reimbursable costs of approximately $0.3 million to ESA Management for administrative services performed on ESH REIT’s behalf (including executive management, accounting, financial analysis, trainingprofessional fees.
57

Depreciation and technology).
Depreciation.amortization. Depreciation and amortization increased by approximately $1.8$2.0 million, or 3.2%4.1%, to approximately $56.5$50.1 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $54.7$48.1 million for the three months ended SeptemberJune 30, 2016, which was primarily2019, due to an increase in investment ina hotel assets.acquisition and newly completed hotels during the fourth quarter of 2019 and first half of 2020.
Other non-operating income.Impairment of long-lived assets. During the three months ended SeptemberJune 30, 2017,2020, ESH REIT recognized an impairment charge of $0.7 million related to an undeveloped land parcel. No impairment charges were recognized during the three months ended June 30, 2019.
Other non-operating income. During the three months ended June 30, 2020 and 2019, ESH REIT recognized a non-cash foreign currency transaction gain of approximately $0.3$0.2 million partially offset by non-cash chargesand $0.1 million, respectively, related to its interest rate swapa residual Canadian dollar-denominated deposit as a result of approximately $0.1 million. During the three months ended September 30, 2016, ESH REIT recognized a non-cash foreign currency transaction gainprior sale of less than $0.1 million.Canadian hotels.
Interest expense, net.Excluding debt extinguishment costs of approximately $14.1 million incurred during the three months ended September 30, 2016 related to the repayment of a mortgage loan, net Net interest expense decreasedincreased by approximately $2.4$2.9 million, or 7.0%9.7%, to approximately $32.1$33.2 million for the three months ended SeptemberJune 30, 20172020, compared to approximately $34.5$30.3 million for the three months ended SeptemberJune 30, 20162019, due to a decreasean increase in ESH REIT’s weighted-average interest rate to approximately 4.5% as of September 30, 2017 compared to approximately 4.6% as of September 30, 2016. ESH REIT's total debt outstanding debt balance was approximately $2.6to $3.0 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2020 compared to $2.4 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2019. In March 2020, ESH REIT borrowed $350.0 million under its revolving credit facility and in September 2019, ESH REIT issued $750.0 million of its 2027 Notes and repaid $500.0 million of the ESH REIT Term Facility. ESH REIT’s weighted-average interest rate decreased to 4.5% as of June 30, 2017 and 2016.2020, compared to 4.7% as of June 30, 2019, due to a decline in LIBOR. Interest expense, net is expected to increase due to the increase in total debt outstanding.
Income tax expense. ESH REIT’s effective income tax rate decreased by approximately 2.1 percentage points to 0.7%remained consistent at less than 0.1% for each of the three months ended SeptemberJune 30, 2017 compared to 2.8% for the three months ended September 30, 2016. Income tax

expense was approximately $0.2 million2020 and $0.7 million for the three months ended September 30, 2017 and 2016, respectively.2019. ESH REIT’s effective tax rate is lower thandiffers from the federal statutory rate of 35%21% primarily due to itsESH REIT’s status as a REIT under the provisions of the Code during these periods. During the three months ended September 30, 2016, ESH REIT recognized a discrete provision to return adjustment of approximately $0.5 million upon the filing of an income tax return. Code.

Comparison of NineSix Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
As of September 30, 2016, ESH REIT owned and leased 629 hotels, consisting of approximately 69,400 rooms. In May 2017, ESH REIT sold three Extended Stay Canada-branded hotels and one additional U.S.-based hotel. As a result, as of September 30, 2017, ESH REIT owned and leased 625 hotels, consisting of approximately 68,800 rooms. The following table presents ESH REIT’s consolidated results of operations for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, including the amount and percentage change in these results between the periods (in thousands): 
Six Months Ended
June 30,
20202019Change ($)Change (%)
Revenues- Rental revenues from Extended Stay America, Inc.
$238,676  $236,107  $2,569  1.1%
Operating expenses:
Hotel operating expenses47,816  43,245  4,571  10.6%
General and administrative expenses7,936  7,525  411  5.5%
Depreciation and amortization99,715  95,999  3,716  3.9%
Impairment of long-lived assets675  —  675  n/a
Total operating expenses156,142  146,769  9,373  6.4%
Other income—  15  (15) (100.0)%
Income from operations82,534  89,353  (6,819) (7.6)%
Other non-operating expense (income)315  (273) 588  215.4%
Interest expense, net65,625  60,201  5,424  9.0%
Income before income tax expense16,594  29,425  (12,831) (43.6)%
Income tax expense11  10  1  10.0%
Net income$16,583  $29,415  $(12,832) (43.6)%
 Nine Months Ended September 30,    
 2017 2016 Change ($) 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)%
Rental revenues from Extended Stay America, Inc. Rental revenues decreasedincreased by approximately $10.6$2.6 million, or 2.7%1.1%, to approximately $375.3$238.7 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $385.9$236.1 million for the ninesix months ended SeptemberJune 30, 2016.2019. The decreaseincrease in rental revenues was partly due to a decrease in fixed minimum rentsrent income related to a hotel acquisition and newly completed hotels during the salefourth quarter of 2019 and the three Extended Stay Canada-branded hotels and one additional hotel in May 2017. Percentagefirst half of 2020. No variable rental revenues decreased by approximately $8.1 million to approximately $28.9 millionwere recognized during the ninesix months ended SeptemberJune 30, 2017 from approximately $37.0 million2020, as minimum percentage rental revenue thresholds were not achieved during the nineperiod. Variable rental revenues of $0.1 million were recognized during the six months ended SeptemberJune 30, 2016.2019. Variable rental revenues are expected to materially decrease for
58

the year ending December 31, 2020 as a result of a decline in Operating Lessee hotel revenues expected due to business disruption and changes in customer behavior resulting from the COVID-19 pandemic.
Hotel operating expenses. Hotel operating expenses increased by approximately $0.8$4.6 million, or 1.2%10.6%, to approximately $69.6$47.8 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $68.8$43.2 million for the ninesix months ended SeptemberJune 30, 2016.2019. This increase was primarily due to increases in real estate tax expense of approximately $1.6 million and the loss on disposal of assets of approximately $0.8 million. These increases were partially offset by a decrease of approximately $1.6 million, in property insurance and related costs that were obligations of ESH REIT due to its ownership$1.6 million and real estate tax expense of the hotels, including property insurance claims.$1.4 million.
General and administrative expenses. General and administrative expenses increased by approximately $1.8$0.4 million, or 17.2%5.5%, to approximately $12.5$7.9 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $10.7$7.5 million for the ninesix months ended SeptemberJune 30, 2016. The increase was mainly2019, due to an increase in consulting and other professional fees of approximately $1.1 million, including an increase in secondary offering costs of approximately $0.4 million, as well as an increase in reimbursable costs of approximately $0.7 millionpaid to ESA Management for administrative services performed on ESH REIT’s behalf (including executive management, accounting, financial analysis, trainingthe Corporation.
Depreciation and technology).

Depreciation.amortization. Depreciation and amortization increased by approximately $9.4$3.7 million, or 5.8%3.9%, to approximately $169.9$99.7 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $160.5$96.0 million for the ninesix months ended SeptemberJune 30, 2016, which was primarily2019, due to an increase in investment ina hotel assets.acquisition and newly completed hotels during the fourth quarter of 2019 and first half of 2020.
Impairment of long-lived assets. Asset impairments are recorded as required based on an evaluation of property and equipment and intangible assets for impairment. During the ninesix months ended SeptemberJune 30, 2017,2020, ESH REIT recognized an impairment charge of approximately $15.0$0.7 million related to its three Extended Stay Canada-branded hotels sold in May 2017.an undeveloped land parcel. No impairment charges were recognized during the ninesix months ended SeptemberJune 30, 2016.2019.
Loss on sale of hotel properties. Other non-operating expense (income). During the ninesix months ended SeptemberJune 30, 2017,2020 and 2019, ESH REIT recognized a loss on sale of hotel properties related to the sale of its three Extended Stay Canada-branded hotels of approximately $1.5 million and a loss on sale of one additional hotel of approximately $1.8 million in May 2017. No hotels were sold during the nine months ended September 30, 2016.
Other income. During the nine months ended September 30, 2017, ESH recognized other income of approximately $0.6 million related to the receipt of funds for a temporary easement at one of its hotel properties.
Other non-operating income. During the nine months ended September 30, 2017, ESH REIT recognized a non-cash foreign currency transaction loss of $0.3 million and gain of approximately $0.6$0.3 million, offset by non-cash chargesrespectively, related to its interest rate swap of approximately $0.3 million. During the nine months ended September 30, 2016, ESH REIT recognized a non-cash foreign currency transaction gain of approximately $0.9 million related to the depreciationresidual Canadian dollar-denominated deposit as a result of the U.S. dollar versus theprior sale of Canadian dollar at ESH REIT's Canadian subsidiary.hotels.
Interest expense, net. Excluding debt modification costs of approximately $1.2 million incurred during the nine months ended September 30, 2017 related to the repricing of ESH REIT's senior secured term loan facility, and excluding debt extinguishment costs of approximately $26.2 million incurred during the nine months ended September 30, 2016 related to the full repayment of the balance outstanding under ESH REIT's previous term loan facility and the partial repayment of ESH REIT's previous mortgage loan, net Net interest expense decreasedincreased by approximately $7.1$5.4 million, or 6.9%9.0%, to approximately $96.6$65.6 million for the ninesix months ended SeptemberJune 30, 20172020, compared to approximately $103.7$60.2 million for the ninesix months ended SeptemberJune 30, 20162019, due to a decreasean increase in ESH REIT’s weighted-average interest rate to approximately 4.5% as of September 30, 2017 compared to approximately 4.6% as of September 30, 2016. ESH REIT's total debt outstanding debt balance was approximately $2.6to $3.0 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2020 compared to $2.4 billion, net of unamortized deferred financing costs and debt discounts, as of June 30, 2019. In March 2020, ESH REIT borrowed $350.0 million under its revolving credit facility and in September 2019, ESH REIT issued $750.0 million of its 2027 Notes and repaid $500.0 million of the ESH REIT Term Facility. ESH REIT’s weighted-average interest rate decreased to 4.5% as of June 30, 2017 and 2016.2020, compared to 4.7% as of June 30, 2019, due to a decline in LIBOR. Interest expense, net is expected to increase for the year ending December 31, 2020, due to the increase in total debt outstanding.
Income tax expense (benefit). expense. ESH REIT’s effective income tax rate increased by approximately 23.9 percentage points to 5.4%remained consistent at less than 0.1% for each of the ninesix months ended SeptemberJune 30, 2017 compared to (18.5)% for the nine months ended September 30, 2016. Income tax expense (benefit) was approximately $0.4 million2020 and $(3.1) million for the nine months ended September 30, 2017 and 2016, respectively.2019. ESH REIT’s effective tax rate is lower thandiffers from the federal statutory rate of 35%21% primarily due to itsESH REIT’s status as a REIT under the provisions of the Code during these periods. The change in ESH REIT’s effective income tax rate for the nine months ended September 30, 2017 is due to the fact that during the nine months ended September 30, 2016, ESH REIT recognized a benefit of approximately $0.8 million related to current state and foreign payable adjustments and a benefit of approximately $2.3 million with respect to the reversal of net deferred tax liabilities for the previously estimated 5% of taxable income expected to be retained under ESH REIT's prior 95% distribution policy, which was changed during the three months ended March 31, 2016.Code.


Non-GAAP Financial Measures
Hotel Operating Profit and Hotel Operating Margin

Hotel Operating Profit and Hotel Operating Margin measure hotel-level operating results prior to certain items, including debt service, income tax expense, impairment charges, depreciation and amortization and general and administrative expenses. The Company believes that Hotel Operating Profit and Hotel Operating Margin are useful measures to investors regarding our operating performance as they help us evaluate aggregate owned hotel-level profitability, specifically owned hotel operating efficiency and effectiveness. Further, these measures allow us to analyze period over period operating margin flow-through, (thedefined as the change in Hotel Operating Profit divided by the change in total room and other hotel revenues).revenues.


We define Hotel Operating Profit as net (loss) income excluding: (1) income tax (benefit) expense; (2) net interest expense; (3) other non-operating (income) expense; (4) other income; (5) gain on sale of hotel properties; (6) impairment of long-lived assets; (7) depreciation and amortization; (8) general and administrative expenses; (9) loss on disposal of assets; (10) franchise and management fees; and (11) other expenses from franchised and managed properties, net of other revenues. We define Hotel Operating Margin as Hotel Operating Profit divided by the sum of room and other hotel revenues less hotel operating expenses (excluding loss on disposal of assets) and Hotel Operating Margin as the ratio of Hotel Operating Profit divided by total hotel revenues. We believe that Hotel Operating Profit and Hotel Operating Margin are not meaningful or useful measures for ESH REIT on a stand-alone basis due to the fact that a Paired Share represents an investment in the Company, as a single, consolidated enterprise, which is reflected in the consolidated Company results of operations; therefore, we believe these performance measures are most meaningful for the consolidated Company only.
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Hotel Operating Profit and Hotel Operating Margin as presented may not be comparable to similar measures calculated by other companies. This information should not be considered as an alternative to net (loss) income of the Company, the Corporation or ESH REIT, or any other measure of the Company, the Corporation or ESH REIT calculated in accordance with U.S. GAAP. Interest expense and other items have been and will continue to be incurred and are not reflected in Hotel Operating Profit or Hotel Operating Margin. Management separately considers the impact of these excluded items to the extent they are material to operating decisions and assessments of operating performance. The Company’s condensed consolidated statements of operations include excluded items, each of which should be considered when evaluating our performance in addition to our non-GAAP financial measures. Hotel Operating Profit and Hotel Operating Margin should not solely be considered as measures of our profitability.
The following table provides a reconciliation of room revenues, other hotel revenues and hotel operating expenses (excluding loss on disposal of assets) to Hotel Operating Profit and Hotel Operating Margin for the Company for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net (loss) income$(8,770) $59,658  $(925) $88,062  
Income tax (benefit) expense(6,052) 11,198  (4,942) 17,321  
Interest expense, net33,621  29,766  66,306  59,370  
Other non-operating (income) expense(302) (171) 401  (349) 
Other income(1) (1) (3) (28) 
Impairment of long-lived assets675  —  675  —  
Depreciation and amortization51,042  49,017  101,562  97,795  
General and administrative expenses23,103  22,287  47,041  45,314  
Loss on disposal of assets (1)
1,636  2,001  4,979  3,377  
Franchise and management fees(1,218) (1,447) (2,497) (2,672) 
System services loss, net638  470  1,055  1,022  
Hotel Operating Profit$94,372  $172,778  $213,652  $309,212  
Room revenues$219,851  $311,614  $474,315  $578,660  
Other hotel revenues6,320  6,070  13,088  11,373  
Total room and other hotel revenues$226,171  $317,684  $487,403  $590,033  
Hotel Operating Margin41.7 %54.4 %43.8 %52.4 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
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%

_________________________________ ________________________
(1) Excludes loss on disposal Included in hotel operating expenses in the condensed consolidated statements of assets of approximately $2.1 million, $2.2 million, $8.1 million and $7.2 million, respectively.operations.
EBITDA and Adjusted EBITDA
EBITDA is defined as net (loss) income excluding: (1) net interest expense; (2) income tax (benefit) expense; and (3) depreciation and amortization. EBITDA is a commonly used measure of performance in many industries. The Company believes that EBITDA provides useful information to investors regarding our operating performance as it helps us and investors evaluate the ongoing performance of our hotels and our franchise and management operations after removing the impact of our capital structure, primarily net interest expense, our corporate structure, primarily income tax expense, and our asset base, primarily depreciation and amortization. We believe that the use of EBITDA facilitates comparisons between us and other lodging companies, hotel owners and capital-intensive companies. Additionally, EBITDA is a measure that is widely used by management in our annual budgeting and compensation planning processes.
The Company uses Adjusted EBITDA when evaluating our performance because we believe the adjustment for certain additional items, described below, provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the U.S. GAAP presentation of net (loss) income, net (loss) income per common share and cash flow provided by operating activities, is beneficial to the overall understanding of our ongoing operating performance. We adjust EBITDA for the following items where applicable for each period presented, and refer to this measure as Adjusted EBITDA:
 
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•Equity-based compensation—We exclude non-cash charges related to the amortization of equity-based compensation expense with respect to awards issued under long-term incentive compensation plans to employees and certain 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•Gain on sale of hotel properties, net—We exclude the net gain or loss on sale of hotel properties, as we believe it is not reflective of ongoing or future operating performance.
•System services (profit) loss, net—We exclude direct and indirect reimbursable expenses from franchised and managed properties, net of other revenues, because although the timing of system service fee revenues will typically not align with expenses incurred to operate these programs, the Company manages system services to break even over time. This policy was implemented on January 1, 2020, due to the growth of our franchise business; no adjustments have been made to prior periods.
•Other expenses—We exclude the effect of other expenses or income that we do not consider reflective of ongoing or future operating performance, including the following: the loss on disposal of assets, non-operating expense (income), including foreign currency transaction costs, incurred in connection with secondary offerings and transactioncertain costs associated with the sale of hotel properties.
acquisitions, dispositions and/or capital transactions.
EBITDA and Adjusted EBITDA as presented may not be comparable to similar measures calculated by other companies. This information should not be considered as an alternative to net (loss) income of the Company, net income of the Corporation net

income ofor ESH REIT, or any other measure of the Company, the Corporation or ESH REIT calculated in accordance with U.S. GAAP. Cash expenditures for capital expenditures, interest expense and other items have been and will continue to be incurred and are not reflected in EBITDA or Adjusted EBITDA. Management separately considers the impact of these excluded items to the extent they are material to operating decisions and assessments of operating performance. The Company’s unaudited condensed consolidated statements of operations and cash flows include capital expenditures, net interest expense and other excluded items, all of which should be considered when evaluating our performance in addition to our non-GAAP financial measures. Additionally, EBITDA and Adjusted EBITDA should not solely be considered as measures of our profitability or indicative of funds available to fund our cash needs, including our ability to pay shareholder distributions.
We believe that EBITDA and Adjusted EBITDA are not meaningful or useful measures for ESH REIT on a stand-alone basis due to the fact that a Paired Share represents an investment in the Company, as a single, consolidated enterprise, which is reflected in the consolidated Company results of operations; therefore, we believe these performance measures are most meaningful for the consolidated Company only.
The following table provides a reconciliation of net (loss) income to EBITDA and Adjusted EBITDA for the Company for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net (loss) income$(8,770) $59,658  $(925) $88,062  
Interest expense, net33,621  29,766  66,306  59,370  
Income tax (benefit) expense(6,052) 11,198  (4,942) 17,321  
Depreciation and amortization51,042  49,017  101,562  97,795  
EBITDA69,841  149,639  162,001  262,548  
Equity-based compensation1,864  2,147  2,990  4,255  
Impairment of long-lived assets675  —  675  —  
System services loss, net (1)
638  —  1,055  —  
Other expense (2)
1,335  1,857  5,381  3,151  
Adjusted EBITDA$74,353  $153,643  $172,102  $269,954  
________________________
(1)In light of the growth of our franchise business and in order to enhance comparability, effective January 1, 2020, the Company adopted the practice of other lodging companies with franchise businesses of excluding system services (profit) loss, net from Adjusted EBITDA; no adjustments have been made to prior period results. System services loss, net, for the three and six months ended June 30, 2019, was $0.5 million and $1.0 million, respectively.
(2)Includes loss on disposal of assets, non-operating (income) expense, including foreign currency transaction costs, and certain costs associated with dispositions. Loss on disposal of assets totaled $1.6 million, $2.0 million, $5.0 million and $3.4 million, respectively.
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 Three Months Ended September 30, Nine Months Ended September 30, 
 2017 2016 2017 2016 
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
 

_________________________________ 
(1)Includes foreign currency transaction gain of approximately $0.4 million and loss related to interest rate swap of approximately $0.1 million.
(2)Includes foreign currency transaction gain of approximately $0.3 million.
(3)Includes foreign currency transaction gain of approximately $0.8 million and loss related to interest rate swap of approximately $0.4 million.
(4)Includes foreign currency transaction gain of approximately $1.1 million.
(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.
(6)Includes loss on disposal of assets of approximately $2.2 million and costs incurred in connection with the October 2016 secondary offering of approximately $0.4 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.
FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share
FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share are key metrics used by management to assess our operating performance and profitability and to facilitate comparisons between us and other hotel and/or real estate companies that include a REIT as part of their legal entity structure. Funds from Operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts ("NAREIT"(“NAREIT”) as net income or loss (computed in accordance with U.S. GAAP), excluding gains or losses from sales of real estate, impairment charges, the cumulative effect of changes in accounting

principle, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures following the same approach. FFO is a commonly used measure among other hotel and/or real estate companies that include a REIT as a part of their legal entity structure. Since real estate depreciation and amortization, impairment of long-lived assets and gains or losses from the salesales of hotel properties are dependent upon the historical cost of the real estate asset bases and generally not reflective of ongoing operating performance or earnings capability, the Company believes FFO is useful to investors as it provides a meaningful comparison of our performance between periods and between us and other companies and/or REITs.
Consistent with our presentation of Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share, as described below, our reconciliation of FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share begins with net (loss) income attributable to Extended Stay America, Inc. common shareholders, which excludes net income attributable to noncontrolling interests, and adds back earnings attributable to ESH REIT’s Class B common shares, presented as a noncontrolling interest of the Company as required by U.S. GAAP. We believe that including earnings attributable to ESH REIT’s Class B common shares in our calculations of FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share provides investors with useful supplemental measures of the Company’s operating performance since our Paired Shares, directly through the pairing of the common stock of the Corporation and Class B common stock of ESH REIT, and indirectly through the Corporation’s ownership of the Class A common stock of ESH REIT, entitle holders to participate in 100% of the common equity and earnings of both the Corporation and ESH REIT. Based on the limitation on transfer provided for in each of the Corporation’s and ESH REIT’s charters, shares of common stock of the Corporation and shares of Class B common stock of ESH REIT are transferable and tradable only in combination as units, each unit consisting of one share of the Corporation’s common stock and one share of ESH REIT Class B common stock.
The Company uses Adjusted FFO and Adjusted FFO per diluted Paired Share when evaluating our performance because we believe the adjustment for certain additional items, described below, provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted FFO and Adjusted FFO per diluted Paired Share, when combined with the U.S. GAAP presentation of net (loss) income and net (loss) income per common share, is beneficial to the overall understanding of our ongoing performance.
The Company adjusts FFO for the following items, net of tax, as applicable, that are not addressed in NAREIT’s definition of FFO, where applicable for each period presented, and refers to this measure as Adjusted FFO:
•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 the 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.
Adjusted FFO per diluted Paired Share is defined as Adjusted FFO divided by the weighted average number of Paired Shares outstanding on a diluted basis. Until such time as the number of outstanding common shares of the Corporation and Class B common shares of ESH REIT differ, we believe Adjusted FFO per diluted Paired Share is useful to investors, as it represents a measure of the economic risks and rewards related to an investment in our Paired Shares.
FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share as presented may not be comparable to similar measures calculated by other REITs or real estate companies that include a REIT as part of their legal entity structure. In particular, due to the fact that we present these measures for the Company on a consolidated basis (i.e., including the impact of franchise fees, management fees and income taxes), FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share, may be of limited use to investors comparing our results only to REITs. This information should not be considered as an alternative to net (loss) income of the Company, net income of the Corporation, net income ofor ESH REIT, net (loss) income per share of common stock of the Corporation, net income per share of Class A or Class B common stock of ESH REIT or any other measure of the Company, the Corporation or ESH REIT calculated in accordance with U.S. GAAP. Real estate related depreciation and amortization expense will continue to be incurred and is not reflected in FFO, Adjusted FFO or Adjusted FFO per diluted Paired Share. Additionally, impairment charges, gains or losses on sales of hotel properties and other charges or income incurred in accordance with U.S. GAAP may occur and are not reflected in FFO, Adjusted FFO or Adjusted FFO per diluted Paired Share. Management separately considers the impact of these excluded items to the extent they are material to operating decisions and assessments of operating
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performance. The Company’s consolidated statements of operations include these items, all of which should be considered when evaluating our performance, in addition to our non-GAAP financial measures.
We believe that FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share are not meaningful or useful measures for ESH REIT on a stand-alone basis due to the fact that a Paired Share represents an investment in the Company, as a single, consolidated

enterprise, which is reflected in the consolidated Company results of operations; therefore, we believe these performance measures are most usefulmeaningful for the consolidated Company only.
The following table provides a reconciliation of net (loss) income attributable to Extended Stay America, Inc. common shareholders to FFO, Adjusted FFO and Adjusted FFO per diluted Paired Share for the Company for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands, except per Paired Share data):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net (loss) income per Extended Stay America, Inc. common share - diluted$(0.07) $0.28  $(0.04) $0.40  
Net (loss) income attributable to Extended Stay America, Inc. common shareholders$(12,363) $53,497  $(7,809) $75,431  
Noncontrolling interests attributable to Class B common shares of ESH REIT3,589  6,157  6,876  12,623  
Real estate depreciation and amortization49,429  47,655  98,310  95,088  
Impairment of long-lived assets675  —  675  —  
Tax effect of adjustments to net (loss) income attributable to Extended Stay America, Inc. common shareholders(10,822) (7,482) (12,430) (14,882) 
FFO30,508  99,827  85,622  168,260  
Adjusted FFO$30,508  $99,827  $85,622  $168,260  
Adjusted FFO per Paired Share - diluted$0.17  $0.53  $0.48  $0.89  
Weighted Average Paired Shares outstanding - diluted177,844  188,813  178,008  188,695  
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 2017 2016 2017 2016
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 swap103
 —
 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

Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share
We present Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share as supplemental measures of the Company’s performance. We believe that these are useful measures for investors since our Paired Shares, directly through the pairing of the common stock of the Corporation and Class B common stock of ESH REIT, and indirectly through the Corporation’s ownership of the Class A common stock of ESH REIT, entitle holders of our Paired Shares to participate in 100% of the common equity and earnings of both the Corporation and ESH REIT. As required by U.S. GAAP, net (loss) income attributable to Extended Stay America, Inc. common shareholders excludes earnings attributable to ESH REIT’s Class B common shares, a noncontrolling interest. Based on the limitation on transfer provided for in each of the Corporation’s and ESH REIT’s charters, shares of common stock of the Corporation and shares of Class B common stock of ESH REIT are transferable and tradable only in combination as units, each unit consisting of one share of the Corporation’s common stock and one share of ESH REIT Class B common stock. As a result, we believe that Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share represent useful measures to holders of our Paired Shares.
Paired Share (Loss) Income is defined as the sum of net (loss) income attributable to Extended Stay America, Inc. common shareholders and noncontrolling interests attributable to Class B common shares of ESH REIT. Adjusted Paired Share (Loss) Income is defined as Paired Share (Loss) Income adjusted for items that, net of income taxes, we believe are not reflective of our ongoing or future operating performance. We adjust Paired Share (Loss) Income for the following items, net of income taxes, wheretax, as applicable, for each period presented, and refer to this measure as Adjusted Paired Share Income: debt modification and extinguishment costs, other non-operating expense (income) (including gain or loss on interest rate swaps or other derivatives and foreign currency transaction gain or loss), impairment of long-lived assets, gain or loss on sale of hotel properties, system services (profit) loss, net and other expenses such as the loss on disposal of assets, non-operating expense (income), including foreign currency transaction costs incurred in connection with secondary offerings and transactioncertain costs associated with the sale of hotel properties.acquisitions, dispositions and/or capital transactions. With the exception of equity-based compensation, an ongoing charge, and debt modification and extinguishment costs, these adjustments (other than the effect of income taxes) are
63

the same as those used in the reconciliation of net (loss) income calculated in accordance with U.S. GAAP to EBITDA toand Adjusted EBITDA.
Adjusted Paired Share (Loss) Income per diluted Paired Share is defined as Adjusted Paired Share (Loss) Income divided by the number of Paired Shares outstanding on a diluted basis. Until such time as the number of outstanding common shares of the

Corporation and Class B common shares of ESH REIT differ, we believe Adjusted Paired Share (Loss) Income per diluted Paired Share is useful to investors, as it represents aone measure of the economic risks and rewards related to an investment in our Paired Shares. We believe that Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share provide meaningful indicators of the Company’s operating performance in addition to separate and/or individual analyses of net (loss) income attributable to common shareholders of the Corporation and net (loss) income attributable to Class B common shareholders of ESH REIT, each of which is impacted by specific U.S. GAAP requirements, including the recognition of contingent lease rental revenues and the recognition of fixed minimum lease rental revenues on a straight-line basis, and may not reflect how cash flows and/or earnings are generated on an individual entity or total enterprise basis. Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share should not be considered as an alternative to net (loss) income of the Company, net income of the Corporation net income ofor ESH REIT, net (loss) income per share of common stock of the Corporation, net income per share of Class A or Class B common stock of ESH REIT or any other measure of the Company, the Corporation or ESH REIT calculated in accordance with U.S. GAAP.
We believe that Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share are not meaningful or useful measures for ESH REIT on a stand-alone basis due to the fact that a Paired Share represents an investment in the Company, as a single, consolidated enterprise, which is reflected in the consolidated Company results of operations; therefore, we believe these performance measures are most meaningful for the consolidated Company only.
The following table provides a reconciliation of net (loss) income attributable to Extended Stay America, Inc. common shareholders to Paired Share (Loss) Income, Adjusted Paired Share (Loss) Income and Adjusted Paired Share (Loss) Income per diluted Paired Share for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands, except per Paired Share data):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Net (loss) income per Extended Stay America, Inc. common share - diluted$(0.07) $0.28  $(0.04) $0.40  
Net (loss) income attributable to Extended Stay America, Inc. common shareholders$(12,363) $53,497  $(7,809) $75,431  
Noncontrolling interests attributable to Class B common shares of ESH REIT3,589  6,157  6,876  12,623  
Paired Share (Loss) Income(8,774) 59,654  (933) 88,054  
Impairment of long-lived assets675  —  675  —  
System services loss, net(1)
638  —  1,055  —  
Other expense(2)
1,335  1,857  5,381  3,151  
Tax effect of adjustments to Paired Share (Loss) Income(573) (291) (720) (493) 
Adjusted Paired Share (Loss) Income$(6,699) $61,220  $5,458  $90,712  
Adjusted Paired Share (Loss) Income per Paired Share – diluted$(0.04) $0.32  $0.03  $0.48  
Weighted average Paired Shares outstanding – diluted177,551  188,813  178,008  188,695  
_________________________
(1)In light of the growth of our franchise business and in order to enhance comparability, effective January 1, 2020, the Company adopted the practice of other lodging companies with franchise businesses of excluding system services (profit) loss, net from Adjusted Paired Share Income; no adjustments have been made to prior period results. System services loss, net, for the three and six months ended June 30, 2019, was $0.5 million and $1.0 million, respectively.
(2)Includes loss on disposal of assets, non-operating (income) expense, including foreign currency transaction costs, and certain costs associated with dispositions. Loss on disposal of assets totaled $1.6 million, $2.0 million, $5.0 million and $3.4 million, respectively.

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

2017
2016
2017 2016 
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
 

(1)Includes foreign currency transaction gain of approximately $0.4 million and loss related to interest rate swap of approximately $0.1 million.
(2)Includes foreign currency transaction gain of approximately $0.3 million.
(3)Includes foreign currency transaction gain of approximately $0.8 million and loss related to interest rate swap of approximately $0.4 million.
(4)Includes foreign currency transaction gain of approximately $1.1 million.
(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.
(6)Includes loss on disposal of assets of approximately $2.2 million and costs incurred in connection with the October 2016 secondary offering of approximately $0.4 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.
Liquidity and Capital Resources
Company Overview
On a consolidated basis, we have historically generated significant cash flow from operations and have financed our ongoing business primarilyas well as the execution of our strategic objectives with existing cash, cash flow generated from operations, borrowings under our revolving credit facilities, as needed, and, in certain instances, proceeds from asset dispositions. We generated cash flow from operations of approximately $369.4$110.3 million and $204.1 million for the ninesix months ended SeptemberJune 30, 2017.2020 and 2019, respectively. Similar to our decreases in RevPAR and Adjusted EBITDA, the decrease in our cash flow from operations was due to the effects of the COVID-19 pandemic. We expect cash flow from operations to materially decrease for the year ended December 31, 2020 due to macroeconomic conditions related to the COVID-19 pandemic. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the pandemic.
Our currentCurrent liquidity requirements consist primarily of funds necessary to pay for or fund (i) hotel operating expenses, (ii) recurring maintenance and capital expenditures, necessaryincluding capital expenditures incurred to maintain ourcomplete the construction of new hotels and select ongoing hotel renovations, (iii) investments in franchise, management and other fee-based programs, (iv) general and administrative expenses, (iv)(v) debt service obligations, including interest expense, (v)(vi) income taxes, (vi) Paired Share repurchases, (vii) Corporation distributions and required ESH REIT distributions and (viii) certain phases of ourother growth and other strategic initiatives (See “Overview”(see “—Overview”). We expect to fund our current liquidity requirements from a combination of cash on hand, cash flow generated from operations borrowings under our revolving credit facilities, as needed, and, in certain instances, proceeds from asset dispositions. We may also fund a portion of our current liquidity requirements with the borrowings under our revolving credit facilities.
The COVID-19 pandemic has given rise to uncertainty with respect to our current liquidity and cash flow generation. As discussed above, in response to the current environment, we have chosen to delay the execution of certain of our business strategies and reduce operating costs and certain capital expenditures in order to preserve liquidity. In March 2020, the Company drew the $399.8 million available borrowing capacity under its revolving credit facilities as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. See “Item 1A. Risk Factors - The continuing crisis resulting from the spread of COVID-19 could negatively impact our current liquidity position, limit or restrict our ability to access new sources of capital and our ability to maintain compliance with the financial covenants and other terms of the agreements governing our existing indebtedness."
Long-term liquidity requirements consist of funds necessary to (i) completemake future hotel renovations (ii) repurpose and/or rebuild certainconstruct new Extended Stay America-branded hotels, (iii) construct new hotels, (iv) acquire additional hotel properties and/or other lodging companies, (iv) repurpose or rebuild certain existing hotels (v) execute our other growth and (v)strategic initiatives, (vi) pay Corporation and required ESH REIT distributions, (vii) repay and/or refinance (including prior to oroutstanding amounts under our existing debt obligations, including our revolving credit facilities due in connection with debt maturity payments)September 2024, the 2025 Notes due in May 2025, the ESH REIT’s 2016REIT Term Facility and ESH REIT’s 5.25% senior notes due in 2025 (the “2025 Notes”) maturingSeptember 2026 and the 2027 Notes due in August 2023 and May 2025, respectively.October 2027. See Note 7 to each of the unaudited condensed consolidated financial statements of Extended Stay America, Inc. and Note 6 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., both of which are included in Item 1 inof this combined quarterly report on Form 10-Q, for additional detail related to our debt obligations.
With respect to our long-term liquidity requirements, specifically our ability to refinance our existing outstanding debt obligations, we cannot assure you that the Corporation and/or ESH REIT will be able to refinance any of its debt on attractive terms at or before maturity, on commercially reasonable terms or at all, or the timing of any such refinancing. We expect to meet our long-term liquidity requirements through various sources of capital, including future debt financings or equity issuances by the Corporation and/or ESH REIT, existing working capital, cash flow generated from operations and, in certain instances, proceeds from asset dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the current and future state of overall capital and credit markets generally and as a result of the COVID-19 pandemic, our degree of leverage, which substantially increased during the six months ended June 30, 2020 with the drawdown of approximately $400 million of borrowing capacity under our revolving credit facilities, the value of our unencumbered assets, and borrowing restrictions imposed by existing or prospective lenders, general market conditions for the lodging industry, our operating performance and liquidity and market perceptions about us. The success of our business strategies will depend, in part, on our ability to access these various capital sources. There can be no assurance that we will be able to raise any such financing on terms acceptable to us or at all.
Business Environment. The COVID-19 pandemic has had, and is expected to continue to have, a material adverse effect on the Company's cash flows from operations. Although the Company generated positive cash flow from operations, net of interest and capital expenditures, during the month ended July 31, 2020, the length and severity of the economic impact related to the COVID-19 pandemic and any future recovery remains uncertain. See "Part I. Item 1A. Risk Factors" in the 2019 Form 10-K, as well as "Item 1A. Risk Factors" below. Although we believe there are opportunities to serve additional extended stay guests in the current environment, including new demand from doctors and other medical staff that have traveled throughout the
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U.S. to combat the COVID-19 pandemic, it is difficult to predict when the pre-pandemic demand and pricing for our hotels will resume, if at all.
Cash Balances.The Company had unrestricted cash and cash equivalents of approximately $116.7$667.6 million and $346.8 million at SeptemberJune 30, 2017.2020 and December 31, 2019, respectively. Based upon the current level of operations, management believes that our cash flow from operations, together with our cash balances, and availableincluding the $399.8 million of borrowings by the Company in March 2020 under ourits revolving credit facilities, willis expected to be adequate to meet ourthe Company’s anticipated funding requirements and business objectives for the foreseeable future. We regularly review our capital structureHowever, the length and at any time may refinance or repay existing indebtedness, incur new indebtedness or purchase debt or equity securities.
On November 7, 2017, the Board of Directors of ESH REIT declared a cash distribution of $0.10 per Class A and Class B common share for the third quarter of 2017. Additionally, the Board of Directorsseverity of the Corporation declaredCOVID-19 pandemic and its economic impact continues to be highly uncertain and further worsening of macroeconomic conditions could require the Company to reassess its liquidity position and take additional measures of liquidity preservation to ensure it can satisfy financial obligations as they come due.
Debt Obligations. The Company’s continued compliance with financial covenants under its debt obligations could be impacted by current or future economic conditions associated with the COVID-19 pandemic. We may not be able to maintain compliance with our debt covenants or pay debt obligations as they become due and could risk default under the agreements governing the Company's indebtedness, upon which the amount outstanding could be accelerated, and may raise substantial doubt about our ability to continue as a cash distribution of $0.11 per common share for the third quarter of 2017. These distributions, which total $0.21 per Paired Share, will be payable on December 5, 2017 to shareholders of record as of November 21, 2017.
The following table outlines distributions declared or paid to date in 2017:

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
going concern.
In June 2017, the Corporation repurchased 14,069 of 21,202 outstanding shares of 8.0% voting preferred stock outstanding from our Former Sponsors at par value, or approximately $14.1 million. The repurchased shares included all preferred stock held by funds or affiliates of Centerbridge Partners, L.P. and The Blackstone Group L.P.; funds or affiliates of Paulson & Co. Inc., a Former Sponser, hold 7,036 of the remaining 7,133 shares of 8.0% voting preferred stock outstanding. On or after November 15, 2018, a holder of the 8.0% voting preferred stock has the right to require the Corporation to redeem in cash the 8.0% voting preferred stock at $1,000 per share plus any accumulated unpaid dividends. On November 15,May 2020, the Corporation shall mandatorily redeem all of the 8.0% voting preferred stock at $1,000 per share plus any accumulated unpaid dividends.
In March 2017, ESH REITCompany entered into an amendment to the 2016 TermCorporation Revolving Credit Facility and obtained a suspension of the quarterly tested leverage covenant from the beginning of the second quarter of 2020 through the end of the first quarter of 2021 (the “Four Quarter Suspension Period”). For the second quarter of 2021 through the fourth quarter of 2021, the leverage covenant calculation has been modified to use annualized EBITDA as opposed to trailing twelve-month EBITDA. Throughout the Four Quarter Suspension Period, the Company has agreed to maintain minimum liquidity of $150.0 million and to limit share repurchases and dividend payments made by the Corporation. Additionally, the amendment provides for the Corporation to borrow up to $150.0 million from ESH REIT through an intercompany loan facility.
On August 6, 2020, ESH REIT repaid the $350.0 million outstanding balance under the ESH REIT Revolving Credit Facility. As of August 10, 2020, the outstanding balance under the facility was $0.
See Note 7 to each of the condensed consolidated financial statements of Extended Stay America, Inc. and ESH Hospitality, Inc., included in Item 1 of this combined quarterly report on Form 10-Q, for additional detail related to our debt obligations and related covenants and “Item 1A. Risk Factors - The continuing crisis resulting from the spread of COVID-19 could negatively impact our current liquidity position, limit or restrict our ability to access new sources of capital and our ability to maintain compliance with the lenders thereunder (such amendment,financial covenants and other terms of the "Repricing Amendment"). The Repricing Amendment had the following impact on the 2016 Term Facility: (i) decreased the interest rate spread on LIBOR based loans from 3.0% to 2.5%; (ii) decreased the interest rate spread on base rate loans from 2.0% to 1.5%; (iii) removed the floor of 0.75% on LIBOR based loans; (iv) removed the floor of 2.0% on base rate loans; (v) removed ranges on interest rate spreads for all loan types that were dependent upon ESH REIT’s credit rating; and (vi) extended the 1% prepayment penalty through September 1, 2017 (prepayments made after September 1, 2017 are not subject to a prepayment penalty, other than customary “breakage” costs).agreements governing our existing indebtedness."
Paired Share Repurchase Program. In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program. As a result of several increases in authorized amounts and 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 ofextensions, 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 ofcurrently authorizes the Corporation and ESH REIT authorized an increase of the combined Paired Share repurchase program fromto purchase up to $200$550 million to up to $300 million ofin Paired Shares and extended the maturity date of the program through December 31, 2017, each effective January 1, 2017.2020. 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). As of SeptemberJune 30, 2017, since the inception of the program,2020, the Corporation and ESH REIT had repurchased and retired their respective portion of approximately 12.828.6 million Paired Shares for approximately $198.7 million. Approximately $101.4$283.0 million is remainingand $166.4 million, including transaction fees, respectively, and $101.1 million remained available under the combined Paired Share repurchase program. While the Company may continue to repurchase Paired Shares at management's discretion, due to the COVID-19 pandemic, we believe it is in the Company's best interest to preserve current liquidity for business and operational needs and, thus, we do not expect to make any repurchases of Paired Shares in the foreseeable future.
InDistributions. On August 10, 2020, the future,Board of Directors of ESH REIT declared a cash distribution of $0.01 per Class A and Class B common share for the second quarter of 2020 payable on September 8, 2020 to shareholders of record as of August 25, 2020.
The following table outlines distributions declared or paid to date in 2020:
Declaration DateRecord DateDate Paid/PayableESH REIT DistributionCorporation DistributionTotal Distribution
2/26/20203/12/20203/26/2020$0.14$0.09$0.23
5/6/20205/21/20206/4/2020$0.01$—$0.01
8/10/20208/25/20209/8/2020$0.01$—$0.01
For the remainder of 2020, due to the impact of the COVID-19 pandemic on current and long-term liquidity, we intend to maintain or increasedecrease our currentprior distribution rate of $0.21$0.23 per Paired Share per quarter, unless our consolidated results of operations, net income, Adjusted EBITDA, liquidity, cash flows, financial condition or prospects, economic conditions or other factors differ materially from our current assumptions. We intendsubject to make a significant portion of our expected total annual distributions in respect ofcontinuing compliance with the Class B common stock of ESH REIT. In
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requirements to qualify and maintain the event distributions in respect of the Class B common stockREIT status of ESH REIT are not sufficientand our ongoing interest in delivering returns to meet our expected Paired Share distributions and/or additional tax efficiency opportunities exist, expected Paired Share distributions may be completed through distributions in respectshareholders. We continue to monitor each of the common stockpreceding factors and expect further potential changes in our distribution amounts in each of the Corporation using funds distributed to the Corporation in respectthird and fourth quarters of the Class A common stock of ESH REIT, after allowance for tax, if any, on those funds. See “Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Distribution Policies” in our combined annual report on Form 10-K filed with the SEC on February 28, 2017 for a description of our distribution policies.2020.
The Corporation
The Corporation’s primary source of liquidity is distribution income it receives in respect of its ownership of 100% of the Class A common stock of ESH REIT, which as of SeptemberJune 30, 2017,2020, represents approximately 57%59% of the outstanding common stock of ESH REIT. Distribution income from ESH REIT declined significantly during the second quarter of 2020 as a result of the business impact of the COVID-19 pandemic and we expect such decline to continue for several quarters. Distributions are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and evolving nature of the COVID-19 pandemic. Other sources of liquidity include income from the operations of the Operating Lessees, ESA Management, ESH Strategies and ESH Strategies.
Strategies Franchise. In August 2016,March 2020, in response to the COVID-19 pandemic and the resulting macroeconomic volatility and economic impact, the Corporation loaned $75.0fully drew the available capacity under the Corporation Revolving Credit Facility and borrowed $49.8 million to ESH REIT under an unsecured intercompany credit facility (the "Unsecured Intercompany Facility"). As of September 30, 2017, the outstanding balance under the Unsecured Intercompany Facility was $50.0 million. Subject to certain conditions, the outstanding balance under the Unsecured Intercompany Facility may be increased to up to $300.0 million. See Notes 7preserve flexibility and 11 to the unaudited condensed consolidated financial statements of

Extended Stay America, Inc.its current and Notes 6 and 9 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., both of which are included in Item 1 in this combined quarterly report on Form 10-Q, for additional detail on the Unsecured Intercompany Facility.long-term liquidity.
The Corporation’s current liquidity requirements consist primarily of funds necessary to pay for or fund (i) hotel operating expenses, (ii) general and administrative expenses, (iii) interest expense on its 8.0% voting preferred stock outstanding,debt service obligations, (iv) income taxes, (v) Paired Share repurchases,investments in its franchise, management and other fee programs and (vi) Corporation distributions. The Corporation expects to fund its current liquidity requirements from a combination of cash on hand, including funds borrowed under the Corporation Revolving Credit Facility or borrowings from ESH REIT, as lender, under the Corporation Intercompany Facility (defined below), as well as cash flow generated from operations (includingincluding distribution income it receives in respect of its ownership of 100% of the Class A common stock of ESH REIT)REIT. The Company has taken steps to reduce both general and borrowings under its revolving credit facility, as needed. administrative and hotel operating expenses in order to preserve current liquidity.
The Corporation’s long-term liquidity requirements will also include the repayment of any outstanding amounts under its revolving credit facilitythe Corporation Revolving Credit Facility, which was fully drawn in March 2020, and the repayment of its 8.0% voting preferred stock outstanding whose total par value is approximately $7.1 million.amounts, if any, under the Corporation Intercompany Facility. See NotesNote 7 and 9 to the unaudited condensed consolidated financial statements of Extended Stay America, Inc., which are included in Item 1 inof this combined quarterly report on Form 10-Q, for additional detail on the Corporation’s debt obligations.
The Corporation is expected tomay continue to pay distributions on its common stock to meet a portion of our expected distribution rate on our Paired Shares.Share distributions. The Corporation'sCorporation’s ability to pay distributions on its common stock is dependent upon a number of factors, including but not limited to, its results of operations, net (loss) income, liquidity, cash flows, financial condition or prospects, economic conditions, all of which have been negatively impacted as a result of the COVID-19 pandemic, as well the ability to effectively execute certain tax planning strategies, compliance with applicable law, the receipt of distributions from ESH REIT in respect of the Class A common stock, level of indebtedness, capital requirements, contractual restrictions, restrictions in any existing and future debt agreements of the Corporation and ESH REIT and other factors. The payment of future distributions in the future will continue to be at the discretion of the Corporation’s Board of Directors.
From time Due to time,the impact of the COVID-19 pandemic, for the remainder of 2020, the Corporation expects that such distributions will be materially reduced in order to preserve current and long-term liquidity and, in light of the unknown duration and severity of the COVID-19 pandemic, the Corporation will continue to approach its future capital allocation, including returning capital to its investors through dividends, share repurchases and debt retirement, with the goal of balancing the need to preserve cash and maintain liquidity.
In July 2020, the Corporation, as borrower, and ESH REIT, as lender, entered into an unsecured credit facility (the "Corporation Intercompany Facility"). Under the Corporation Intercompany Facility, the Corporation may borrow up to $150.0 million. Loans under the facility bear interest at an annual rate of 4.5%. In addition to paying interest on outstanding principal, the Corporation is required to pay a commitment fee to ESH REIT of 0.25% on the unutilized facility balance. There is no scheduled amortization under the facility and the facility matures in July 2025. Obligations under the Corporation Intercompany Facility and guarantees thereof are unsecured and fully subordinated to the obligations of the Corporation under the Corporation Revolving Credit Facility. The Corporation has the option to prepay outstanding balances under the facility without penalty. As of August 10, 2020, the outstanding balance under the facility was $0.
ESH REIT may in the future return additional cash to ESH REIT in orderthe Corporation for ESH REITthe Corporation to pay forfund its current and long-term liquidity requirements or fund (i) capital expenditures (see "Liquidity and Capital Resources - ESH REIT"), (ii) outstanding debt obligations or (iii) for other corporate purposes. The CorporationESH REIT may transfer cash to ESH REITthe Corporation through the purchaseredemption of additional shares of Class A common stock, which would increase itsdecrease the Corporation's ownership of ESH REIT. Such redemption would likely be inefficient from a tax perspective because the redemption would be taxed as an ordinary dividend. Additionally, ESH REIT and reduce the Company’s overall tax efficiency. Additionally,may loan funds to the Corporation may loan additional funds to ESH REIT under the UnsecuredCorporation Intercompany Facility, (whose principal amount, subject to certain conditions, may be increased to up to $300.0 million) or an additional intercompany facility, subject to the conditions contained in the 2016 ESH REITCorporation Revolving Credit Facilities, the 2025 NotesFacility and the Unsecured Intercompany Facility.other existing debt agreements.
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Based upon the current level of operations, management believes that the Corporation’s cash position and cash flow generated from operations and available borrowings under its revolving credit facility, as needed, will be adequate to meet all of the Corporation’s funding requirements and business objectives for the foreseeable future.
ESH REIT
ESH REIT’s primary source of liquidity is rental revenues derived from leases. The leases expire in October 2023, and at such time, we expect minimum and percentage rents to be adjusted to reflect then-current market terms. Percentage rents are expected to materially decrease for the year ending December 31, 2020, as a result of a decline in Operating Lessee hotel revenues expected due to macroeconomic conditions related to the COVID-19 pandemic and may continue to decline in future years. Current and future results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends and the evolving nature of the pandemic. In March 2020, as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic, ESH REIT fully drew the available capacity of $350.0 million under the ESH REIT Revolving Credit Facility. On August 6, 2020, ESH REIT repaid the $350.0 million outstanding balance under the ESH REIT Revolving Credit Facility. As of August 10, 2020, the outstanding balance under the facility was $0.
ESH REIT’s current liquidity requirements include funds necessary to pay (i) fixed costs associated with ownership of hotel properties, (ii) debt service obligations, including interest expense, (ii)and with respect to the ESH REIT Term Facility, scheduled principal payments on its outstanding indebtedness, including the repayment of any outstanding amounts under the 2016 ESH REIT Credit Facilities and the Unsecured Intercompany Facility,borrowings, (iii) real estate tax expense, (iv) property insurance premium and claims expense, (v) general and administrative expenses (includingexpense, including administrative service costs reimbursed to the Corporation),Corporation, (vi) capital expenditures, including those capital expenditures incurred to perform hotel renovations, repurpose and/or rebuild certain hotels, construct new hotels and acquire additional hotel properties and/or other lodging companies, (vii) draws made by the Corporation on the Corporation Intercompany Facility and (vii)(viii) the payment of required REIT distributions.
ESH REIT’s long-term liquidity requirements includeconsist of funds necessary to (i) perform capital expenditures related tocomplete future hotel renovations, (ii) repurpose and/or rebuild certain of ESH REIT’s existing hotel properties, (iii) buildconstruct new Extended Stay America brandedAmerica-branded owned hotels, (iv) acquire additional hotel properties and/or other lodging companies, (v) pay required REIT distributions, (vi) fund draws made by the Corporation on the Corporation Intercompany Facility, (vii) repay outstanding amounts under its revolving credit facility and (v)(viii) refinance (including prior to or in connection with debt maturity payments) the 2025 Notes, the ESH REIT’s 2016REIT Term Facility and ESH REIT’s 2025the 2027 Notes maturing in August 2023May 2025, September 2026 and May 2025,October 2027, respectively. See Note 67 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., which are included in Item 1 inof this combined quarterly report on Form 10-Q, for additional detail on ESH REIT’s debt obligations.
In order to qualify and maintain its status as a REIT, ESH REIT must distribute annually to its shareholders an amount at least equal to:


•90% of its REIT taxable income, computed without regard to the deduction for dividends paid and excluding any net capital gain; plus
•90% of the excess of its net income, if any, from foreclosure property over the tax imposed on such income by the Code; less
•the sum of certain items of non-cash income that exceeds a percentage of ESH REIT’s income.
ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Accordingly, ESH REIT expects to distribute approximately 100% of its taxable income for the foreseeable future. ESH REIT is subject to income tax on its taxable income that is not distributed and to an excise tax to the extent that certain percentages of its taxable income are not distributed by specified dates. To the extent distributions in respect of the Class B common stock of ESH REIT are not sufficient to meet our expected Paired Share distributions, Paired Share distributions are expected tomay be completed through distributions in respect of the common stock of the Corporation, as they have been in certain prior periods, using funds distributed to the Corporation in respect of the Class A common stock of ESH REIT, after allowance for tax, if any, on those funds.
DueIn light of the unknown duration and severity of the COVID-19 pandemic, ESH REIT will continue to approach its future capital allocation, including returning capital to its shareholders (including the Corporation) through dividends, share repurchases and debt retirement, with the goal of balancing the need to preserve cash, maintain liquidity as well as compliance with REIT distribution requirements, ESH REIT has historically not accumulated significant amounts of cash. As a result and as discussed above, werules.
We expect that ESH REIT will need to refinance all or a portion of its outstanding debt, including the 20162025 Notes, the ESH REIT Credit Facilities and the 20252027 Notes, on or before maturity. See Note 67 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., which are included in Item 1 inof this combined quarterly report on Form 10-Q, for additional detail on ESH
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REIT’s debt obligations. We cannot assure you that ESH REIT will be able to refinance any of its debt on attractive terms at or before maturity, on commercially reasonable terms or at all.
In August 2016, ESH REIT, as borrower, and the Corporation, as lender, entered into an unsecured intercompany credit facility, as may be amended and supplemented from time to time (the “ESH REIT Intercompany Facility”). Under the ESH REIT Intercompany Facility, ESH REIT may borrow up to $300.0 million, plus additional amounts, in each case subject to certain conditions. There is no scheduled amortization under the facility and the facility matures in September 2026. As of June 30, 2020, the outstanding balance under the ESH REIT Intercompany Facility was $0.
From time to time, the Corporation may return additional cash to ESH REIT in order for ESH REIT to pay for or fund (i) its current and long-term liquidity requirements, (ii) capital expenditures, (iii) outstanding debt obligations or (iv) for other corporate purposes. The Corporation may transfer cash to ESH REIT through the purchase of additional shares of Class A common stock, which would increase its ownership of ESH REIT and reduce the Company’s overall tax efficiency. Additionally, the Corporation may loan funds to ESH REIT under the ESH REIT Intercompany Facility, subject to the conditions contained in existing debt agreements. See Note 7 to the condensed consolidated financial statements of ESH Hospitality, Inc., included in Item 1 of this quarterly report on Form 10-Q, for additional detail on ESH REIT’s debt obligations. In light of the effect of the COVID-19 pandemic, the Corporation does not expect to return additional cash to ESH REIT in the foreseeable future to the extent it is not required under existing agreements or applicable law.
Based upon the current level of operations, management believes that ESH REIT’s cash position, cash flow generated from operations and, available borrowings under its revolving credit facility and Unsecured Intercompany Facility, as needed,in certain circumstances, proceeds from asset sales, will be adequate to meet all of ESH REIT’s funding requirements and business objectives for the foreseeable future.
Sources and Uses of Cash – The Company
The following cash flow table and comparisons are provided for the Company:
Comparison of NineSix Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
We had unrestrictedtotal cash, and cash equivalents and restricted cash of approximately $116.7$682.4 million and $149.8$302.6 million at SeptemberJune 30, 20172020 and 2016,2019, respectively. The following table summarizes the changes in our cash, and cash equivalents and restricted cash as a result of operating, investing and financing activities for the ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands):
Nine Months Ended September 30,  Six Months Ended June 30,
2017 2016 Change ($)20202019Change ($)
Cash provided by (used in):




Cash provided by (used in):
Operating activities$369,419
 $335,990

$33,429
Operating activities$110,318  $204,097  $(93,779) 
Investing activities(84,208) (100,793)
16,585
Investing activities(104,322) (112,309) 7,987  
Financing activities(252,984) (458,635)
205,651
Financing activities314,858  (92,545) 407,403  
Effects of changes in exchange rate on cash and cash equivalents275
 34

241
Effects of changes in exchange rate on cash and cash equivalents(78) 61  (139) 
Net increase (decrease) in cash and cash equivalents$32,502
 $(223,404)
$255,906
Net increase (decrease) in cash and cash equivalents$320,776  $(696) $321,472  
Cash Flows provided by Operating Activities
Cash flows provided by operating activities totaled approximately $369.4$110.3 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $336.0$204.1 million for the ninesix months ended SeptemberJune 30, 2016, an increase2019, a decrease of approximately $33.4$93.8 million. CashThe decrease in cash flows provided by operating activities were positively impacted during the nine months ended September 30, 2017 by additional cash generated from improvedwas due to a decline in hotel operating performance, specifically a 1.3% increase19.0% decrease in RevPAR and a 60 bps increase in Hotel Operating Margin,driven by the negative impact of the COVID-19 pandemic, as well as a decrease in income tax paymentsthe management of $24.4 million, partially offset by higher cash interest payments of $3.2 million.short-term working capital.
Cash Flows used in Investing Activities
Cash flows used in investing activities totaled approximately $84.2$104.3 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $100.8$112.3 million for the ninesix months ended SeptemberJune 30, 2016,2019, a decrease of approximately

$16.6$8.0 million. CashThe decrease in cash flows used in investing activities decreased during the nine months ended September 30, 2017was due to a net decrease in purchases ofinvestment in property and equipment, including development in process and intangible assets, of $33.6 million as a result of the completion of our hotel renovation program during the second quarter of 2017. Additionally, during the nine months ended September 30, 2017, the Company received net proceeds of approximately $48.0 million related to the sale of four hotels. These changes were offset by a decrease in restricted cash of approximately $62.7 million provided in 2016 by escrow accounts as a result of the repayment of ESH REIT’s mortgage loan in August 2016.$7.6 million.
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Cash Flows used inprovided by (used in) Financing Activities
Cash flows used inprovided by financing activities totaled approximately $253.0$314.9 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $458.6 million million for the nine months ended September 30, 2016, a decrease of approximately $205.6 million. Cashcash flows used in financing activities decreased mainlyof $92.5 million for the six months ended June 30, 2019. Cash flows provided by financing activities increased due to lower net debt repayments of $152.1the Company borrowing $399.8 million under the ESH REIT and ESA revolving credit facilities in March 2020, and a decrease in Paired Share distributions paid toof $42.1 million, partially offset by an increase of $31.1 million in Paired Shareholders of approximately $44.0Share repurchases and $6.4 million as a resultin the repurchase of the special distribution paid in January 2016 and fewer share repurchases.Corporation’s 8.0% mandatorily redeemable preferred stock.
Sources and Uses of Cash – ESH REIT
The following cash flow table and comparisons are provided for ESH REIT:
Comparison of NineSix Months Ended SeptemberJune 30, 20172020 and SeptemberJune 30, 20162019
ESH REIT had unrestrictedtotal cash and cash equivalents of approximately $65.0$606.7 million and $36.4$124.1 million at SeptemberJune 30, 20172020 and 2016,2019, respectively. The following table summarizes the changes in ESH REIT’s cash and cash equivalents as a result of operating, investing and financing activities for the ninesix months ended SeptemberJune 30, 20172020 and 20162019 (in thousands):

Nine Months Ended September 30,  Six Months Ended June 30,

2017 2016 Change ($)20202019Change ($)
Cash provided by (used in):
 


Cash provided by (used in):
Operating activities$368,479
 $375,253

$(6,774)Operating activities$141,159  $185,357  $(44,198) 
Investing activities(88,079) (100,871)
12,792
Investing activities(102,150) (107,697) 5,547  
Financing activities(268,893) (461,215)
192,322
Financing activities271,537  (132,083) 403,620  
Net increase (decrease) in cash and cash equivalents$11,507
 $(186,833)
$198,340
Net increase (decrease) in cash and cash equivalents$310,546  $(54,423) $364,969  
Cash Flows provided by Operating Activities
Cash flows provided by operating activities totaled approximately $368.5$141.2 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $375.3$185.4 million for the ninesix months ended SeptemberJune 30, 2016,2019, a decrease of approximately $6.8$44.2 million. Cash flows provided by operating activities decreasedThis decrease was due to an increasea decline in cash interest expensepercentage rent payments received due to the decline in Operating Lessee hotel revenues as a result of $5.2 million and an increase in income tax paymentsthe COVID-19 pandemic, as well as the management of approximately $1.0 million.short-term working capital.
Cash Flows used in Investing Activities
Cash flows used in investing activities totaled approximately $88.1$102.2 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $100.9$107.7 million for the ninesix months ended SeptemberJune 30, 2016,2019, a decrease of approximately $12.8$5.5 million. CashThe decrease in cash flows used in investing activities decreased during the nine months ended September 30, 2017was due to a $5.2 million net decrease in purchases ofinvestment in property and equipment, of $33.3 million as a result of the completion of our hotel renovation program during the second quarter of 2017. Additionally, during the nine months ended September 30, 2017, ESH REIT received net proceeds of approximately $42.0 million related to the sale of four hotels. These changes were offset by a decreaseincluding development in restricted cash of approximately $60.2 million provided in 2016 as a result of the repayment of ESH REIT’s mortgage loan in August 2016.process and intangible assets.
Cash Flows used inprovided by (used in) Financing Activities
Cash flows used inprovided by financing activities totaled approximately $268.9$271.5 million for the ninesix months ended SeptemberJune 30, 20172020 compared to approximately $461.2 million for the nine months ended September 30, 2016, a decrease of approximately $192.3 million. Cashcash flows used in financing activities decreased mainlyof $132.1 million for the six months ended June 30, 2019. Cash flows provided by financing activities increased due to lower net debt repayments of $91.0ESH REIT borrowing $350.0 million under the its revolving credit facility in March 2020 and a decrease in distributions paid to ESH REIT shareholdersClass A and Class B common distributions of approximately $76.6$63.0 million, as a resultpartially offset by an increase of the special distribution paid$11.4 million in January 2016 and fewer shareESH REIT Class B common stock repurchases.

Capital Expenditures
We maintain each of our hotels in good repair and condition and in conformity with applicable laws and regulations. The cost of all improvements and significant alterations are generally made with cash flows from operations. During the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, the Company incurred capital expenditures, including development and construction in process, of approximately $133.3$105.3 million and $166.5$112.9 million, respectively. These capital expenditures were primarily made asrelated to development and construction in process, ordinary hotel capital improvements, investments in information technology and cyclical hotel renovations. Each hotel is generally on a result ofseven-year renovation cycle. We completed our prior cyclical hotel renovation program which wasin mid-2017. In the fourth quarter of 2018, the Company commenced its current cyclical hotel renovation program. With respect to our current cyclical hotel renovation program, as of June 30, 2020, we have substantially completed renovations at 22 hotels for $47.4
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million. We are in the second quarterprocess of 2017performing renovations at 12 additional hotels, with total costs incurred for this and other capital projects. future planned hotel renovations (consisting primarily of advance materials purchases) of $14.2 million.
Funding requirements for future capital expenditures, isincluding current and future cyclical hotel renovations, building new hotels we expect to own and operate, acquiring and converting existing hotels to the Extended Stay America brand and repurposing and/or rebuilding certain of our hotel properties, will be significant and are expected to be provided primarily from cash flows generated from operations or, to the extent necessary, the Corporation or ESH REIT revolving credit facilities, including intercompany facilities and, in certain instances, proceeds from asset sales.
In response to the Unsecured Intercompany Facility.COVID-19 pandemic, the Company, specifically ESH REIT, has delayed certain non-guest facing capital investments and construction of three new hotels. In 2017,2020, we expect to incur capital expenditures between $163$160 million and $178 million, including amounts spent through the third quarter.$190 million. As part of these capital expenditures, the Company expectswe expect to purchase land and incur additional capital expenditures relatedspend approximately $65 to $75 million for construction of new hotel development.
Hotel Renovations
In 2011, we began performinghotels, $20 to $25 million for hotel renovations and executed a phased capital investment program across our portfolio in order$10 to seek to drive increases in ADR and gain$15 million for incremental market share. This hotel renovation program was undertaken in phases and by the second quarter of 2017, we had completed renovations across our entire 625-hotel portfolio. The renovations generally required approximately $1.0 million in capital spend per hotel. Hotel renovations typically included 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. Total hotel renovation program expenditures were approximately $616.4 million.
Our next hotel renovation cycle is expected to begin in 2019, with each hotel on a seven-year renovation cycle. While management is currently assessing what future hotel renovations will entail, the next renovation cycle is not expected to include the same replacements and upgrades across the entire portfolio, but rather will be evaluated on a hotel by hotel basis in order to assess the potential return for each asset in our portfolio based on multiple market and hotel specific variables.information technology investments.
Our Indebtedness
As of SeptemberJune 30, 2017,2020, the Company’s total indebtedness was approximately $2.5$3.0 billion, net of unamortized deferred financing costs and debt discounts, including approximately $7.1$0.7 million of Corporation mandatorily redeemable preferred stock. ESH REIT'sREIT’s total indebtedness at SeptemberJune 30, 20172020 was approximately $2.6$3.0 billion, net of unamortized deferred financing costs and debt discounts, including $50.0 million outstanding under the Unsecured Intercompany Facility. For a detailed discussion of our indebtedness, see Notesdiscounts. See Note 7 and 9 to the unaudited condensed consolidated financial statements of Extended Stay America, Inc. and Note 6 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., both of which are included in Item 1 inof this combined quarterly report on Form 10-Q.10-Q, for additional detail related to our debt obligations.
Off-Balance Sheet Arrangements
Neither the Corporation nor ESH REIT have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. See Note 12 to the unaudited condensed consolidated financial statements of Extended Stay America, Inc. and Note 1011 to the unaudited condensed consolidated financial statements of ESH Hospitality, Inc., both of which are included in Item 1 inof this combined quarterly report on Form 10-Q, for additional information with respect to commitments and contingencies, including lease obligations.
Critical Accounting Policies
Our discussion and analysis of our historical financial condition and results of operations is based on the Company’s and ESH REIT’s historical unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ significantly from these estimates and assumptions. We believe the following accounting policies, which are described in detail in Note 2 to each of the audited consolidated financial statements of Extended Stay America, Inc. and ESH Hospitality, Inc., both of which are included in Item 8 in our combined annual report onof the 2019 Form 10-K, filed with the SEC on February 28, 2017, require material subjective or complex judgments and have the most significant impact on the Company’s and ESH REIT’s financial condition and results of operations: property and equipment, goodwill,investments, rental revenue recognition and income taxes, equity-based compensation and investments.taxes. We evaluate estimates, assumptions and judgments on an ongoing basis, based on information

that is then available to us, our experience and various matters that we believe are reasonable and appropriate for consideration under the circumstances.

Recent Accounting Pronouncements
For a discussion of recently issued accounting standards, see Note 2 to each of the unaudited condensed consolidated financial statements of Extended Stay America, Inc. and ESH Hospitality, Inc., both of which are included in Item 1 inof this combined quarterly report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation and ESH REIT may seek to reduce earnings and cash flow volatility associated with changes in interest rates, foreign currency exchange rates and commodity prices by entering into financial arrangements to provide a hedge against a portion of the risks associated with such volatility, when applicable. We have exposure to such risks to the extent they are not hedged. We may enter into derivative financial arrangements to the extent they meet the foregoing objectives. We do not use derivatives for trading or speculative purposes.
The Corporation
As of September 30, 2017, the
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The Corporation had minimalcurrently has limited exposure to market risk from changes in interest rates because it had norates. As of June 30, 2020, the Corporation's variable rate debt as there were no outstanding amountsconsisted of $49.8 million drawn on the Corporationits revolving credit facility. The Corporation's exposureIf market rates of interest were to market risk from changes influctuate by 1.0%, interest rates mayexpense would increase in future periods shouldor decrease by $0.5 million annually, assuming that the amount of outstanding Corporation incur variable rate debt including draws on the Corporation's revolving credit facility. The Corporation has minimal exposure to market risk from changes in foreign currency exchange rates due to the sale of the three Extended Stay Canada-branded hotels in May 2017, for which the Corporation is party to separate management agreements that are expected to terminate on or before March 31, 2018.remains at $49.8 million.
ESH REIT
As of SeptemberJune 30, 2017, approximately $1.32020, $1.0 billion of ESH REIT’s outstanding gross debt of approximately $2.6$3.0 billion net of unamortized deferred financing costs and debt discounts, had a variable interest rate. ESH REIT is a counterparty to an interest rate swap at a fixed rate of 1.175%. The notional amount of the interest rate swap as of SeptemberJune 30, 20172020 was $400.0$150.0 million, which reducesis reduced by $50.0 million every six months until the swap matures in September 2021. The remaining $826.2 million of outstanding variable interest rate debt of approximately $887.0 million, which is not subject to the interest rate swap remains subject to interest rate risk. If market rates of interest were to fluctuate by 1.0%, interest expense would increase or decrease by approximately $8.9$8.3 million annually, assuming that the net amount of outstanding ESH REIT’sREIT unhedged variable interest rate debt remains at approximately $887.0$826.2 million.
ESH REIT sold its three Extended Stay Canada-branded hotels during the nine months ended September 30, 2017. As a result, ESH REIT has minimal exposure to market risk from changes in foreign currency exchange rates due to the fact that its only remaining Canadian currency-based assets and liabilities relate to residual working capital. A fluctuation of 1% in the exchange rate between the U.S. dollar and the Canadian dollar would result in foreign currency transaction gain or loss of approximately $0.2 million.

Item 4. Controls and Procedures
Controls and Procedures (Extended Stay America, Inc.)
Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2020, Extended Stay America, Inc. reviewed, under the direction of the Chief Executive Officer and Chief Financial Officer, the disclosure controls and procedures of Extended Stay America, Inc., as defined in Exchange Act Rule 13a-15(e). Based upon and as of the date of that review, the Chief Executive Officer and Chief Financial Officer of Extended Stay America, Inc. concluded that the disclosure controls and procedures of Extended Stay America, Inc. were effective to ensure that information required to be disclosed in the reports that Extended Stay America, Inc. files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of Extended Stay America, Inc., including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in Extended Stay America, Inc.’s internal control over financial reporting that occurred during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, Extended Stay America, Inc.’s internal control over financial reporting.

Controls and Procedures (ESH Hospitality, Inc.)
Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2020, ESH Hospitality, Inc. reviewed, under the direction of the Chief Executive Officer and Chief Financial Officer, the disclosure controls and procedures of ESH Hospitality, Inc., as defined in Exchange Act Rule 13a-15(e). Based upon and as of the date of that review, the Chief Executive Officer and Chief Financial Officer of ESH Hospitality, Inc. concluded that the disclosure controls and procedures of ESH Hospitality, Inc. were effective to ensure that information required to be disclosed in the reports that ESH Hospitality, Inc. files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of ESH Hospitality, Inc., including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in ESH Hospitality, Inc.’s internal control over financial reporting that occurred during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, ESH Hospitality, Inc.’s internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings

We are from time to time subject to various claimslitigation and lawsuitsclaims incidental to our business. We recognize a liability when we believe a loss is probable and can be reasonably estimated. However, the ultimate result of litigation and claims cannot be predicted with certainty.
As of June 30, 2020, the following six purported class action lawsuits have been filed against the Company:
Date of FilingPlaintiff(s)Defendant(s)Court
March 27, 2018Tracy Reid, on behalf of himself, all others similarly situatedESA Management, LLCUS District Court, Northern District of California
June 8, 2018Franisha Beasley and Stephanie Randall, individually and on behalf of others similarly situatedESA Management, LLCUS District Court, Northern District of California
July 13, 2018Adrienne Liggins, individually and on behalf of others similarly situated and aggrievedESA Management, LLC, Extended Stay America - Anaheim Convention CenterUS District Court, Northern District of California
July 13, 2018Bridget Liggins, individually and on behalf of others similarly situated and aggrievedESA Management, LLCState of California, Orange County Superior Court
August 21, 2018Sandra Arizmendi, an individual, on behalf of the State of California, as private attorney general, and on behalf of all others similarly situatedESA Management, LLCUS District Court, Northern District of California
January 18, 2019Lisa M. Sanchez, individually and on behalf of all others similarly situatedExtended Stay America, Inc. and ESA Management, LLCState of California, Orange County Superior Court
The complaints above 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 three months ended June 30, 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 condensed 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 the Sanchez lawsuit described below, the parties reached a tentative settlement agreement in January 2020, which is subject to certain conditions, including court approval. During the three months ended December 31, 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 condensed consolidated financial statements, results of operations or liquidity.
With respect to the Sanchez 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 condensed 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.
We are also subject to various other litigation and claims incidental to our business. We believe we have adequate reserves against such matters. In the opinion of management, these claims and suits,such matters, individually or in the aggregate, will not have a material
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adverse effect on the Company’s unaudited condensed consolidated financial statements, results of operations or liquidity or on ESH REIT’s unaudited condensed consolidated financial statements, results of operations or liquidity.
Item 1A. Risk Factors
There have been no material changes
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I. Item 1A. Risk Factors” in the 2019 Form 10-K, as well as the risk factors below, which supplement and should be read in conjunction with the risk factors disclosed in our 2019 Form 10-K, any and all of which could materially affect our business, financial condition, or future results. The potential effects of COVID-19 could intensify or otherwise affect many of our other risk factors included in our 2019 Form 10-K, including, but not limited to, risks inherent to the lodging industry, macroeconomic factors beyond our control, our business strategy, competition for hotel guests and management and franchise contracts and risks related to doing business with third-party hotel owners. Because the COVID-19 situation is continuously evolving, additional impacts to our principal risksrisk factors that we believe are materialfurther described in our 2019 Form 10-K remain uncertain.
The continuing crisis resulting from the COVID-19 pandemic has negatively affected and will likely continue to negatively affect our business, results of operations, financial condition and cash flows.

The COVID-19 pandemic has significantly affected the global economy and strained the lodging industry due to travel restrictions, stay-at-home directives and changing consumer patterns in response to the pandemic, which have resulted in reduced travel and cancellations. Currently, there are no fully effective vaccines, the timing and efficacy of any future vaccine is uncertain and there is no widespread treatment for COVID-19. As such, COVID-19 has had a negative impact on our results of operations for the six months ended June 30, 2020, and we expect it to continue to negatively affect future results. The current and uncertain future impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel and use our hotel properties, is expected to continue to negatively affect our business, results of operations, financial condition and cash flows.
We have been, and expect to continue to be, negatively affected by government regulations and travel advisories to fight the pandemic, including occupancy limits for certain business establishments, which may in the future include our hotels, and requirements that individuals self-quarantine when traveling from one state to another. Lodging demand may remain weak for an undetermined length of time and we cannot predict if or when ADR and occupancy rates will return to pre-outbreak levels. Adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19, are expected to continue to negatively affect travel and lodging demand. If efforts to mitigate the spread of COVID-19 fail or if the easing or removal of existing restrictions leads to a second wave of the pandemic, government officials may order closures of our properties or impose further restrictions on travel, or the Company may elect, on a voluntary basis, to close certain of our properties. Any of these events could result in further disruption to our operations and an additional decrease in demand for our hotels. If the value of our hotel properties significantly declines, we may incur impairment charges in the future, which would adversely impact our results of operations.
During the six months ended June 30, 2020, we reduced a portion of our variable operating costs, including hotel-level payroll by decreasing labor hours for certain employees on staff at our properties. The steps we have taken to reduce operating costs and additional steps we may take in the future to reduce operating costs may negatively affect our brand reputation or our ability to attract and retain employees. Even after the COVID-19 pandemic subsides, we could experience unfavorable long-term impacts on our operating costs as a result of attempts to counteract future outbreaks of COVID-19 or other viruses due to, for example, enhanced health and hygiene requirements in one or more regions or other such measures. In addition, in March 2020 we adopted a policy for corporate employees to work from home to the extent possible that remains in effect. Our operations could be negatively affected by such policy to the extent certain operational resources are not available and efficiency declines as a result. Should any corporate or other team members become ill from COVID-19 and unable to work, the attention of management could be diverted. Such disruptions to our businesses could ultimately increase overall operating costs and decrease operating efficiencies.
It continues to be a challenge to predict the ultimate impact that COVID-19 will have on third-party owners, service providers, travel agencies, suppliers and other vendors. In particular, if third-party owners of our hotels are unable to maintain their hotels and service indebtedness secured by their hotels, our results of operations and reputation could suffer. Bankruptcies, sales or foreclosures involving our hotels could, in some cases, result in the termination of our management or franchise agreements, which would negatively affect our results of operations. Hotel owners with financial difficulties may be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all. Current and ongoing economic conditions also could affect our ability to enter into management and franchise agreements with potential third-party owners of our hotels, who
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may be unable to obtain financing or face other delays in developing hotel projects. As a result, some properties in our development pipeline may not enter our system when we anticipated, or at all, and new hotels may enter our pipeline at a slower rate than expected.
The performance of the lodging industry, including the extended stay segment, is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels, which may continue to be impacted even after the COVID-19 pandemic subsidies. Declines in corporate budgets and spending and in consumer demand, concerns over recessionary economic conditions, risks affecting or reducing travel patterns, lower consumer confidence, increases in unemployment or adverse political conditions may have a material adverse effect on revenues and profitability of our hotels, including the amount of franchise and management fee revenues we are able to generate. We rely on the strength of regional and local economies with respect to the performance of each of our properties.
The extent of the effects of COVID-19 on our business and the overall lodging industry is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, the possibility of a second wave of the outbreak, the timing and availability of vaccinations and other treatments, and the length of time it takes for lodging demand and pricing to stabilize. Given this uncertainty, we are presently unable to estimate the full impact to our future results of operations, cash flows and financial condition,condition.
The continuing crisis resulting from the risk factors previously disclosedspread of COVID-19 could negatively impact our current liquidity position, limit or restrict our ability to access new sources of capital and negatively impact our ability to maintain compliance with the financial covenants and other terms of the agreements governing our existing indebtedness.

We must maintain, renovate and improve our hotel properties in order to remain competitive, maintain the value and brand standards of our hotel properties and comply with applicable laws and regulations. Maintenance, renovations and improvements to our hotel properties create an ongoing need for cash for us or our franchisees, and, to the extent this need cannot be funded from cash generated by operations, funds must be borrowed or otherwise obtained. Our hotels are our primary source of income and cash flow from operations. Although we generated cash flow from operations of $110.3 million during the six months ended June 30, 2020, such amount represents a decrease of $93.8 million compared to the six months ended June 30, 2019. In light of the decrease in cash flows for the first half of fiscal year 2020 and the expectation that our cash flows will continue to decline on a period-over-period basis for an amount of time that cannot be predicted with certainty, in March 2020 we fully drew on approximately $400 million under our revolving credit facilities, leaving us no remaining borrowing availability under such facilities.
We may be required to raise additional capital in the combined annual reportfuture and our access to and cost of financing will depend on, Form 10-K filedamong other things, economic conditions, conditions in financial markets, the availability of sufficient amounts of financing, our prospects and credit ratings. If our credit ratings are downgraded, or general market conditions ascribe higher risk to our rating levels, our industry or us, then our access to capital and the cost of any debt financing will likely be negatively affected. In addition, the terms of future debt agreements may include more restrictive covenants, or require incremental collateral, which may further restrict our business operations. There is no guarantee that debt financings will be available in the future to fund our obligations, including the maturity of existing debt facilities, or that they will be available on terms consistent with our expectations.
We have no control over and cannot predict the length of the crisis nor any government response to the crisis, including any future shelter in place or stay-at-home orders, which could result in another shut down of the national economy. The negative impact to our operations as a result of the COVID-19 pandemic has substantially reduced RevPAR due to declines in occupancy rates and ADR. If we are unable to generate sufficient revenues from our hotels or if we continue to experience significant declines in demand for our hotels, this would negatively impact our ability to remain in compliance with our debt covenants or meet our payment obligations. We may not be able to meet our debt covenants or pay our obligations as they become due and could risk default under the agreements governing our indebtedness, including our credit facilities and indentures governing our senior notes, which could give lenders the right to accelerate the amounts outstanding, and raise substantial doubt about our ability to continue as a going concern.
In response to these concerns, in May 2020 we amended the Corporation Revolving Credit Facility to, among other things, suspend the quarterly tested leverage covenant for the fiscal quarters ending June 30, 2020, September 30, 2020, December 31, 2020 and March 31, 2021. In addition, for the quarter ended June 30, 2021 through the quarter ended December 31, 2021, the leverage covenant calculation has been modified to use annualized EBITDA, as opposed to trailing twelve-month EBITDA. Throughout the suspension period, the Company has agreed to maintain minimum liquidity of $150.0 million and to limit share repurchases and dividend payments made by the Corporation. We cannot assure you that the Corporation Revolving Credit Facility amendment will be the only covenant suspension, waiver or amendment required by us or that this amendment
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will prevent us from future covenant breaches or the acceleration of our indebtedness. Also, in response to reductions in cash flow from operations at the Corporation due to the COVID-19 pandemic and current and expected future reductions in distribution income in respect of its ownership of 100% of the Class A common stock of ESH REIT, in July 2020 we entered into an intercompany lending facility between the Corporation, as borrower, and ESH REIT, as lender, in an effort to further ensure the Corporation’s current and future liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—the Corporation."
Since the first confirmed case of COVID-19 in the United States in late January 2020, the market price of our Paired Shares has declined. If the share price continues to be depressed or decreases further, it may cause a trigger event for impairment testing of certain tangible and intangible assets, including goodwill, long-lived assets and our trademark, which could have an impact on the value of collateral pledged in connection with our credit facilities.
As a result of and in response to the COVID-19 pandemic, the Corporation and ESH REIT expect to, subject to compliance with the SEC on February 28, 2017, which is accessible onrequirements for qualification as a REIT, materially reduce the SEC’s website at www.sec.gov.amount of cash distributions paid to holders of our Paired Shares during fiscal year 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuers and Affiliated Purchasers
No Paired Share Repurchase ProgramShares were repurchased during the three months ended June 30, 2020.
The following table sets forth all purchases made by or on behalfIn December 2015, the Boards of Directors of the Corporation and ESH REIT or any “affiliated purchaser,” as definedauthorized a combined Paired Share repurchase program. As a result of several increases in Rule 10b-18(a)(3) underauthorized amounts and program extensions, the Exchange Act, of Paired Shares during each month in the third quarter of 2017.
Period
Total 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
_________________________________ 
(1)Represents an equal number of Corporation common shares and ESH REIT Class B common shares, which were paired together on a one-for-one basis to form Paired Shares.
(2)In the aggregate, the Corporation and ESH REIT paid approximately $3.1 million and $1.7 million, respectively, for their respective portion of the Paired Shares that were repurchased and retired during the three months ended September 30, 2017.
(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).
Approximately $101.4 million is remaining under the Paired Share repurchase program ascurrently authorizes the Corporation and ESH REIT to purchase up to $550 million in Paired Shares through December 31, 2020. 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). As of November 7, 2017.June 30, 2020, $101.1 million remained under the combined Paired Share repurchase program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.

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Item 6. Exhibits
Exhibit
Number
Description
Exhibit
Number
10.1		DescriptionSeparation Agreement between Extended Stay America, Inc. and Ames Flynn, dated as of January 30, 2020 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36190) filed January 31, 2020, and incorporated by reference herein). Agreement between Extended Stay America, Inc. and Ames Flynn, dated as of January 30, 2020 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36190) filed January 31, 2020, and incorporated by reference herein).
10.1
10.2		Addendum to ManagementCredit Agreement, dated September 18, 2017, by and between 8887322 Canada Inc. and HVM Canada Hotel Management ULC.
10.2
Termination of Trademark License Agreement, dated July 11, 2017, by and between ESH Strategies Branding LLC and ESA Canada Operating ULC (f/k/a ESA Canada Operating Lessee Inc.).
10.3
Trademark License Agreement, effective as of July 31, 2017, by and2, 2020, between ESH Strategies Branding LLCExtended Stay America, Inc., as borrower, and ESH Strategies Franchise LLC.Hospitality, Inc., as lender (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36190) filed July 6, 2020, and incorporated by reference herein).
101.1.INSXBRL Instance Document
101.1.SCHXBRL Taxonomy Extension Schema Document
101.1.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.1.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.1.LABXBRL Taxonomy Extension Label Linkbase Document
101.1.PREXBRL Taxonomy Extension Presentation Linkbase Document
_________________________________ 

* Filed herewith.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
EXTENDED STAY AMERICA, INC.
Date: August 10, 2020EXTENDED STAY AMERICA, INC.By:/s/ Bruce N. Haase
Bruce N. Haase
Date: November 7, 2017By:/s/ Gerardo I. Lopez
Gerardo I. Lopez
President and Chief Executive Officer
Date: November 7, 2017August 10, 2020By:/s/ Jonathan S. HalkyardBrian T. Nicholson
Jonathan S. HalkyardBrian T. Nicholson
Chief Financial Officer
ESH HOSPITALITY, INC.
Date: November 7, 2017August 10, 2020By:/s/ Gerardo I. LopezBruce N. Haase
Gerardo I. LopezBruce N. Haase
President and Chief Executive Officer
Date: November 7, 2017August 10, 2020By:/s/ Jonathan S. HalkyardBrian T. Nicholson
Jonathan S. HalkyardBrian T. Nicholson
Chief Financial Officer



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