Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2013 |
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 and combined financial statements. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated and combined financial statements should be read in conjunction with the audited consolidated and combined financial statements as of and for the year ended December 31, 2012 included in the IPO Prospectus. |
|
The accompanying unaudited condensed consolidated and combined financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company Predecessor’s financial position as of September 30, 2013, the results of the Company Predecessor’s operations and comprehensive income for the three and nine months ended September 30, 2013 and 2012, changes in equity for the nine months ended September 30, 2013, and the cash flows for the nine months ended September 30, 2013 and 2012. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations, including the impact of our hotel reinvestment program. |
Use of Estimates—The preparation of the accompanying unaudited condensed consolidated and combined 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 allocation of purchase price to acquired assets in 2012 (see Note 3). Significant estimates also include the estimated useful lives of tangible assets as well as the assessment of tangible and intangible assets, including goodwill, for impairment, estimated liabilities for insurance reserves and the grant-date fair value per Profit Unit (as defined in Note 11) related to equity-based compensation. Actual results could differ from those estimates. |
Restricted Cash—Restricted cash consists of amounts held in cash management accounts and in escrows for the payment of hotel occupancy/sales taxes, property taxes and insurance, capital improvements, ground leases, operating expenses (including management fees and reimbursements), and mortgage and mezzanine debt service, all as required by ESH REIT Predecessor’s mortgage and mezzanine loan agreements (see Note 6). |
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 1 year to 49 years. |
Management assesses whether there has been impairment of the value of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property to the estimated future undiscounted cash flows expected to be generated by the hotel property. Impairment is recognized when estimated future undiscounted cash flows, including proceeds from disposition, are less than the carrying value of the hotel property. The estimation of future undiscounted cash flows is inherently uncertain and relies upon assumptions regarding current and future economic and market conditions. If such conditions change, then an impairment charge to reduce the carrying value of the hotel property could occur in a future period in which conditions change. |
To the extent that a hotel property is impaired, the excess carrying amount of the hotel property over its estimated fair value is charged to operating earnings. Fair value is determined based upon the discounted cash flows of the hotel property, quoted market prices or independent appraisals, as considered necessary. The Company Predecessor recognized impairment charges related to property and equipment of approximately $1.9 million and $0 for the three months ended September 30, 2013 and 2012, respectively, and approximately $3.3 million and $0 for the nine months ended September 30, 2013 and 2012, respectively (see Note 4). |
Variable Interest Entity—The Company Predecessor held a variable interest in HVM (see Notes 1 and 8). The Company Predecessor’s maximum exposure to loss as a result of its involvement with HVM was related to the need to secure alternative hotel management services and systems support if HVM were ever unable to fulfill its obligations under its management agreements with the Company Predecessor. The assets of HVM could not be used to settle obligations of the Company Predecessor and the Company Predecessor’s assets could not be used to settle obligations of HVM. For the nine months ended September 30, 2013 and 2012, the Company Predecessor represented approximately 99.5% and 97.2%, respectively, of the business conducted by HVM. The Company Predecessor concluded that it was the primary beneficiary of HVM and, as a result, has consolidated the financial position, results of operations, comprehensive income, and cash flows of HVM with the Company Predecessor. Since the Company Predecessor had no equity interest in HVM, the results of operations and members’ capital of HVM are reported as noncontrolling interests in the accompanying unaudited condensed consolidated and combined financial statements. |
HVM provided hotel management and administrative services, including the supervision, direction and control of the operations, management, and promotion of the hotel properties in a manner associated with extended-stay hotels of similar size, type, or usage in similar locations. See summarized financial information of HVM in Note 8. |
In connection with the Pre-IPO Transactions, the net assets of HVM were purchased by the Company in November 2013. See Note 13. |
|
Segments—The Company Predecessor’s hotel operations represent a single operating segment based on the way the Company Predecessor managed its business. The Company Predecessor’s hotels provide similar services, use similar processes to sell those services and sell their services to similar classes of customers. The amounts of long-lived assets and net sales outside the U.S. were not significant for any of the periods presented. |
Net Income per Share—Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of shares of the Company’s common stock outstanding. Diluted net 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 Company’s common stock outstanding plus other potentially dilutive securities. Dilutive securities may include equity-based awards issued under long-term incentive plans and other convertible noncontrolling interests or securities. |
As discussed in Note 13, in November 2013, the Company completed the Pre-IPO Transactions. For purposes of computing earnings per share, it is assumed that the recapitalization of the Company’s Predecessor had occurred for all periods presented and therefore the outstanding shares have been adjusted to reflect the conversion of shares that took place in anticipation of the Offering. Accordingly, the denominators in the computations of basic and diluted net income per share reflect the Company’s capitalization subsequent to September 30, 2013, but prior to the Offering. |
The calculations of basic and diluted net income per share, including a reconciliation of the numerators and denominators, are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
(in thousands, except per share data) | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Numerator: | | | | | | | | | | | | | | | | |
Net income available to common shareholders - basic | | $ | 46,156 | | | $ | 33,136 | | | $ | 97,174 | | | $ | 55,408 | |
Net income available to noncontrolling interests assuming conversion | | | (90 | ) | | | (92 | ) | | | (199 | ) | | | (153 | ) |
| | | | | | | | | | | | | | | | |
Net income available to common shareholders - diluted | | $ | 46,066 | | | $ | 33,044 | | | $ | 96,975 | | | $ | 55,255 | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding - basic | | | 170,433 | | | | 169,720 | | | | 170,387 | | | | 169,641 | |
Dilutive securities | | | 1,392 | | | | 1,988 | | | | 1,468 | | | | 1,981 | |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding - diluted | | | 171,825 | | | | 171,708 | | | | 171,855 | | | | 171,622 | |
Basic net income per share | | $ | 0.27 | | | $ | 0.2 | | | $ | 0.57 | | | $ | 0.33 | |
Diluted net income per share | | $ | 0.27 | | | $ | 0.19 | | | $ | 0.56 | | | $ | 0.32 | |
Recently Issued Accounting Standards |
Income Taxes—In July 2013, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update which provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This updated accounting standard is effective for fiscal and interim reporting periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. The Company Predecessor is currently evaluating the impact of adopting the updated accounting standard, but it does not expect the adoption to have a material effect on the Company Predecessor’s consolidated financial statements. |
Cumulative Translation Adjustment—In March 2013, the FASB issued an accounting standards update that indicates when the cumulative translation adjustment (“CTA”) related to an entity’s investment in a foreign entity should be released to earnings. The CTA should be released when an entity sells a foreign subsidiary or a group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in a foreign entity. The CTA should also be released when an entity no longer has a controlling financial interest in an investment in a foreign entity. This updated accounting standard is effective for fiscal and interim reporting periods beginning after December 15, 2013, and shall be applied prospectively. The Company Predecessor is currently evaluating the impact of adopting the updated accounting standard, but it does not expect the adoption to have a material effect on the Company Predecessor’s consolidated financial statements. |
Other Comprehensive Income—In February 2013, the FASB issued guidance requiring companies to present either in a single note or parenthetically on the face of the financial statements the effect of significant amounts reclassified from each component of comprehensive income based on its source and the income statement line items affected by the reclassification. This guidance is effective for fiscal and interim reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material effect on the Company Predecessor’s accompanying unaudited condensed consolidated and combined financial statements. |
ESH Hospitality Inc [Member] | ' |
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 Predecessor 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, 2012 included in the IPO Prospectus. |
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly ESH REIT Predecessor’s financial position as of September 30, 2013, the results of ESH REIT Predecessor’s operations and comprehensive income for the three and nine months ended September 30, 2013 and 2012, changes in equity for the nine months ended September 30, 2013, and the cash flows for the nine months ended September 30, 2013 and 2012. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations, including the impact of our hotel reinvestment program. |
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 allocation of purchase price to acquired assets in 2012 (see Note 3). Significant estimates also include the estimated useful lives of tangible assets as well as the assessment of tangible and intangible assets, including goodwill, for impairment, estimated liabilities for insurance reserves and the grant-date fair value per Profit Unit (as defined in Note 12) related to equity-based compensation. Actual results could differ from those estimates. |
Restricted Cash—Restricted cash consists of amounts held in cash management accounts and in escrows for the payment of hotel occupancy/sales taxes, property taxes and insurance, capital improvements, ground leases, operating expenses (including management fees and reimbursements), and mortgage and mezzanine debt service, all as required by ESH REIT Predecessor’s mortgage and mezzanine loan agreements (see Note 6). |
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 1 to 49 years. |
Management assesses whether there has been impairment of the value of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property to the estimated future undiscounted cash flows expected to be generated by the hotel property. Impairment is recognized when estimated future undiscounted cash flows, including proceeds from disposition, are less than the carrying value of the hotel property. The estimation of future undiscounted cash flows is inherently uncertain and relies upon assumptions regarding current and future economic and market conditions. If such conditions change, then an impairment charge to reduce the carrying value of the hotel property could occur in a future period in which conditions change. |
To the extent that a hotel property is impaired, the excess carrying amount of the hotel property over its estimated fair value is charged to operating earnings. Fair value is determined based upon the discounted cash flows of the hotel property, quoted market prices or independent appraisals, as considered necessary. ESH REIT Predecessor recognized impairment charges related to property and equipment of approximately $1.9 million and $0 for the three months ended September 30, 2013 and 2012, respectively, and approximately $3.3 million and $0 for the nine months ended September 30, 2013 and 2012, respectively (see Note 4). |
Variable Interest Entity—ESH REIT Predecessor held a variable interest in HVM (see Notes 1 and 8). ESH REIT Predecessor’s maximum exposure to loss as a result of its involvement with HVM was related to the need to secure alternative hotel management services and systems support if HVM were ever unable to fulfill its obligations under its management agreements with ESH REIT Predecessor. The assets of HVM could not be used to settle obligations of ESH REIT Predecessor and ESH REIT Predecessor’s assets could not be used to settle obligations of HVM. For the nine months ended September 30, 2013 and 2012, ESH REIT Predecessor represented approximately 99.2% and 96.8%, respectively, of the business conducted by HVM. ESH REIT Predecessor has concluded that it was the primary beneficiary of HVM and, as a result, has consolidated the financial position, results of operations, comprehensive income, and cash flows of HVM with ESH REIT Predecessor. Since ESH REIT Predecessor has no equity interest in HVM, the results of operations and members’ capital of HVM are reported as noncontrolling interests in the accompanying unaudited condensed consolidated financial statements. |
HVM provided hotel management and administrative services, including the supervision, direction and control of the operations, management, and promotion of the hotel properties in a manner associated with extended-stay hotels of similar size, type, or usage in similar locations. See summarized financial information of HVM in Note 8. |
In connection with the Pre-IPO Transactions, the net assets of HVM were purchased by the Company in November 2013. See Note 14. |
Segments—ESH REIT Predecessor’s hotel operations represent a single operating segment based on the way ESH REIT Predecessor managed its business. ESH REIT Predecessor’s hotels provide similar services, use similar processes to sell those services and sell their services to similar classes of customers. The amounts of long-lived assets and net sales outside the U.S. were not significant for any of the periods presented. |
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 common stock outstanding. 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 common stock outstanding plus other potentially dilutive securities. Dilutive securities may include equity-based awards issued under long-term incentive plans and other convertible noncontrolling interests or securities. |
As discussed in Note 14, in November 2013, the Company and ESH REIT completed the Pre-IPO Transactions. For purposes of computing earnings per share, it is assumed that the recapitalization of the Company, ESH REIT and ESH REIT’s Predecessor had occurred for all periods presented and therefore the outstanding shares have been adjusted to reflect the conversion of shares that took place in anticipation of the Offering. Accordingly, the denominators in the computations of basic and diluted net income per share reflect ESH REIT’s capitalization subsequent to September 30, 2013, but prior to the Offering. |
The calculations of basic and diluted net income per share, including a reconciliation of the numerators and denominators, are as follows: |
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
(in thousands, except per share data) | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Numerator: | | | | | | | | | | | | | | | | |
Class A: | | | | | | | | | | | | | | | | |
Net income available to common shareholders - basic | | $ | 24,911 | | | $ | 17,840 | | | $ | 52,209 | | | $ | 29,639 | |
Net loss available to controlling interests assuming conversion | | | (90 | ) | | | (93 | ) | | | (189 | ) | | | (153 | ) |
| | | | | | | | | | | | | | | | |
Net income available to common shareholders - diluted | | $ | 24,821 | | | $ | 17,747 | | | $ | 52,020 | | | $ | 29,486 | |
| | | | |
Class B: | | | | | | | | | | | | | | | | |
Net income available to common shareholders - basic | | $ | 20,370 | | | $ | 14,587 | | | $ | 42,691 | | | $ | 24,236 | |
Net income available to noncontrolling interests assuming conversion | | | 90 | | | | 93 | | | | 189 | | | | 153 | |
| | | | | | | | | | | | | | | | |
Net income available to common shareholders - diluted | | $ | 20,460 | | | $ | 14,680 | | | $ | 42,880 | | | $ | 24,389 | |
| | | | |
Denominator: | | | | | | | | | | | | | | | | |
Class A: | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding - basic and diluted | | | 210,008 | | | | 209,865 | | | | 210,045 | | | | 209,760 | |
| | | | |
Class B: | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding - basic | | | 170,433 | | | | 169,720 | | | | 170,387 | | | | 169,641 | |
Dilutive securities | | | 1,392 | | | | 1,988 | | | | 1,468 | | | | 1,981 | |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding - diluted | | | 171,825 | | | | 171,708 | | | | 171,855 | | | | 171,622 | |
Basic net income per share - Class A | | $ | 0.12 | | | $ | 0.09 | | | $ | 0.25 | | | $ | 0.14 | |
Basic net income per share - Class B | | $ | 0.12 | | | $ | 0.09 | | | $ | 0.25 | | | $ | 0.14 | |
Diluted net income per share - Class A | | $ | 0.12 | | | $ | 0.08 | | | $ | 0.25 | | | $ | 0.14 | |
Diluted net income per share - Class B | | $ | 0.12 | | | $ | 0.09 | | | $ | 0.25 | | | $ | 0.14 | |
Recently Issued Accounting Standards |
Income Taxes—In July 2013, the FASB issued an accounting standards update which provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This updated accounting standard is effective for fiscal and interim reporting periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. ESH REIT Predecessor is currently evaluating the impact of adopting the updated accounting standard, but it does not expect the adoption to have a material effect on ESH REIT Predecessor’s consolidated financial statements. |
Cumulative Translation Adjustment—In March 2013, the FASB issued an accounting standards update that indicates when the cumulative translation adjustment (“CTA”) related to an entity’s investment in a foreign entity should be released to earnings. The CTA should be released when an entity sells a foreign subsidiary or a group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in a foreign entity. The CTA should also be released when an entity no longer has a controlling financial interest in an investment in a foreign entity. This updated accounting standard is effective for fiscal and interim reporting periods beginning after December 15, 2013, and shall be applied prospectively. ESH REIT Predecessor is currently evaluating the impact of adopting the updated accounting standard, but it does not expect the adoption to have a material effect on ESH REIT Predecessor’s consolidated financial statements. |
Other Comprehensive Income—In February 2013, the FASB issued guidance requiring companies to present either in a single note or parenthetically on the face of the financial statements the effect of significant amounts reclassified from each component of comprehensive income based on its source and the income statement line items affected by the reclassification. This guidance is effective for fiscal and interim reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material effect on ESH REIT Predecessor’s accompanying unaudited condensed consolidated financial statements. |