DEBT | 12 Months Ended |
Jun. 30, 2014 |
DEBT | ' |
6. DEBT |
Summary—The Company’s outstanding debt as of June 30, 2014 and December 31, 2013, is as follows (in thousands): |
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| | June 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans payable | | $ | 2,519,843 | | | $ | 2,519,843 | | | | | | | | | | | | | | | | | | | | | | | | | |
Term loan payable, net of discount of $1,868 | | | 373,132 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine loans payable | | | — | | | | 365,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facilities | | | 28,000 | | | | 20,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt | | $ | 2,920,975 | | | $ | 2,904,843 | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Company’s outstanding debt as of June 30, 2014 and December 31, 2013, consists of the following (dollars in thousands): |
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| | | | | Outstanding Principal | | | | | | Interest Rate | | | | | | | |
Loan | | Stated | | | June 30, | | | December 31, | | | Stated Interest | | | June 30, | | | December 31, | | | Maturity | | | Amortization | |
Amount | 2014 | 2013 | Rate (2) | 2014 | 2013 | Date |
Mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mortgage Loan — Component A | | $ | 350,000 | | | $ | 349,843 | | | $ | 349,843 | | | | LIBOR | (1) + 2.0547% | | | 2.2057 | % | | | 2.2227 | % | | | 12/1/14 | (3) | | | Interest only | |
2012 Mortgage Loan — Component B | | | 350,000 | | | | 350,000 | | | | 350,000 | | | | 3.4047 | % | | | 3.4047 | % | | | 3.4047 | % | | | 12/1/17 | | | | Interest only | |
2012 Mortgage Loan — Component C | | | 1,820,000 | | | | 1,820,000 | | | | 1,820,000 | | | | 4.0547 | % | | | 4.0547 | % | | | 4.0547 | % | | | 12/1/19 | | | | Interest only | |
Term facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 Term Loan (4) | | | 375,000 | | | | 373,132 | | | | — | | | | LIBOR | (1)(5) + 4.25% | | | 5 | % | | | N/A | | | | 6/24/19 | | | | Interest only | (6) |
Mezzanine loans payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mezzanine A Loan | | | 500,000 | | | | — | | | | 168,981 | | | | 8.25 | % | | | N/A | | | | 8.25 | % | | | 12/1/19 | | | | Interest only | |
2012 Mezzanine B Loan | | | 330,000 | | | | — | | | | 111,528 | | | | 9.625 | % | | | N/A | | | | 9.625 | % | | | 12/1/19 | | | | Interest only | |
2012 Mezzanine C Loan | | | 250,000 | | | | — | | | | 84,491 | | | | 11.5 | % | | | N/A | | | | 11.5 | % | | | 12/1/19 | | | | Interest only | |
Revolving credit facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporation revolving credit facility | | | 75,000 | | | | — | | | | — | | | | LIBOR | (1) + 3.75% | | | N/A | | | | N/A | | | | 11/18/16 | (7) | | | Interest only | |
ESH REIT revolving credit facility | | | 250,000 | | | | 28,000 | | | | 20,000 | | | | LIBOR | (1) + 3.0% | | | 3.1533 | % | | | 3.1646 | % | | | 11/18/16 | (7) | | | Interest only | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | $ | 2,920,975 | | | $ | 2,904,843 | | | | | | | | | | | | | | | | | | | | | |
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-1 | London Interbank Offering Rate. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | The Company is a counterparty to an interest rate cap on one-month LIBOR at 3.0% with a notional amount and maturity date the same as those of 2012 Mortgage Loan Component A. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-3 | ESH REIT has the option to extend the maturity date of Component A of the 2012 Mortgage Loan for up to three consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-4 | The 2014 Term Loan is presented net of an unamortized discount of $1,868 as of June 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-5 | The 2014 Term Loan includes a LIBOR floor of 0.75%. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-6 | There is no scheduled amortization on the 2014 Term Loan; however, subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow, based on ESH REIT’s Consolidated Leverage Ratio, as defined. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-7 | Each revolving credit facility is subject to a one-year extension option. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
On June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan, ESH REIT repaid the remaining outstanding balance of $365.0 million of its 2012 Mezzanine Loans. Repayment consisted of approximately $169.0 million of the 2012 Mezzanine A Loan, approximately $111.5 million of the 2012 Mezzanine B Loan and approximately $84.5 million of the 2012 Mezzanine C Loan. During the three and six months ended June 30, 2014, ESH REIT incurred approximately $9.4 million of debt extinguishment and other costs in connection with the 2012 Mezzanine Loan prepayments, consisting of prepayment penalties and other costs of approximately $4.3 million and the write-off of unamortized deferred financing costs of approximately $5.1 million. Debt extinguishment costs are included as a component of interest expense in the accompanying consolidated and combined statements of operations. |
Mortgage and Mezzanine Loans |
On November 30, 2012, ESH REIT entered into a $2.52 billion mortgage loan comprised of three components (the “2012 Mortgage Loan”) and three mezzanine loans totaling $1.08 billion (the “2012 Mezzanine Loans”). Monthly interest-only payments for the 2012 Mortgage Loan total approximately $7.8 million and are due on the first day of each calendar month. |
Subsequent to the Offering, in the fourth quarter of 2013, ESH REIT repaid $715.0 million of the 2012 Mezzanine Loans. Repayment consisted of approximately $331.0 million of the 2012 Mezzanine A Loan, approximately $218.5 million of the 2012 Mezzanine B Loan and approximately $165.5 million of the 2012 Mezzanine C Loan. As discussed above, on June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan, ESH REIT repaid the remaining outstanding balance of $365.0 million of the 2012 Mezzanine Loans. |
The occurrence of a Mortgage Loan Event of Default, a Debt Yield Trigger Event (a Debt Yield, as defined, of less than 9.0%), or a Guarantor Bankruptcy triggers a Cash Trap Event, as defined. During the period of a Cash Trap Event, any excess cash flow, after all monthly requirements (including the payment of management fees and operating expenses) are fully funded, is held by the loan service agent as additional collateral for the 2012 Mortgage Loan. As of June 30, 2014, none of these events had occurred. |
All receipts from 680 of 684 of ESH REIT’s hotel properties which serve as collateral for the 2012 Mortgage Loan are required to be deposited into a domestic cash management account (“CMA’’) for hotels in the U.S. and a Canadian CMA for hotels in Canada. Such CMAs are under the control of the loan service agent as specified by the terms of the mortgage loan agreement and cash management agreement and are, therefore, classified as restricted cash. Receipts are allocated to CMA subaccounts for hotel occupancy/goods and services sales taxes, property taxes, insurance, ground leases, operating expenses (including management fees and reimbursements), capital improvements and mortgage debt service. Funds in excess of a month’s Canadian waterfall requirements are converted to U.S. dollars and transferred to the domestic CMA. Funds in excess of a month’s domestic waterfall requirements are distributed to the Corporation and/or ESH REIT so long as no Cash Trap Event has occurred. |
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ESH REIT Term Facility |
On June 23, 2014, ESH REIT entered into a $375.0 million term loan facility (the “2014 Term Loan”). ESH REIT used the term loan proceeds to repay the outstanding balance on its 2012 Mezzanine Loans of $365.0 million. Subject to certain conditions, the principal amount of the 2014 Term Loan may be increased from time to time up to an amount which would not cause the Consolidated Leverage Ratio, as defined, to exceed 5.25 to 1.0. The 2014 Term Loan matures on June 24, 2019 and bears interest at a rate equal to (i) LIBOR (subject to a floor of 0.75%) plus 4.25%, or (ii) a base rate (determined by reference to the highest of (1) prime lending rate, (2) the overnight federal funds rate plus 0.5%, or (3) the one-month adjusted LIBOR rate (subject to a floor of 0.75%) plus 1.0%) plus 3.25%. There is no scheduled amortization on the 2014 Term Loan; however, subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow, based on ESH REIT’s Consolidated Leverage Ratio, as defined. |
As of June 30, 2014, the outstanding principal amount on the 2014 Term Loan was approximately $373.1 million, net of an unamortized discount of approximately $1.9 million. |
Obligations under the 2014 Term Loan are primarily secured by a first-priority security interest in all assets of ESH REIT on a pari passu basis with obligations under the ESH REIT revolving credit facility, discussed below. The 2014 Term Loan may be repaid prior to its maturity, subject to the following prepayment penalties: (a) prior to June 24, 2015, a make whole premium equal to the sum of the present value at such date of all interest that would accrue on the portion of the loans being prepaid from such date to and including June 23, 2015, and an amount equal to 2.0% of the aggregate principal amount repaid; (b) on or after June 24, 2015 but prior to December 24, 2015, 2.0% of the aggregate principal amount repaid; and (c) on or after December 24, 2015 but prior to June 24, 2016, 1.0% of the aggregate principal amount repaid. Repayments on or after June 24, 2016 require no prepayment penalties. |
During a Trigger Event, an Adjusted Trigger Event, a Default or an Event of Default, each as defined in the 2014 Term Loan, ESH will be restricted from making cash dividends, subject to certain exceptions. As of June 30, 2014, none of these events had occurred. |
Revolving Credit Facilities |
Corporation Revolving Credit Facility – On November 18, 2013, the Corporation entered into a $75.0 million revolving credit facility. On November 18, 2014, the borrowing availability under the facility will be reduced to $50.0 million. The facility provides for the issuance of up to $50.0 million of letters of credit as well as borrowings on same day notice, referred to as swingline loans, in an amount up to $20.0 million. The Corporation incurs a fee of 0.35% or 0.175% on the unutilized revolver balance, based on the outstanding amount under the facility and a fee of 3.875% on outstanding letters of credit due on the last day of each quarter. Borrowings under the facility bear interest at a rate equal to an adjusted LIBOR rate or a base rate determined by reference to the highest of (i) the prime lending rate, (ii) the overnight federal funds rate plus 0.5% or (iii) the one-month adjusted LIBOR rate plus 1.0%, plus an applicable margin of 2.75% for base rate loans and 3.75% for LIBOR loans. There is no scheduled amortization under the facility and the facility matures on November 18, 2016, subject to a one-year extension option. As of June 30, 2014 and December 31, 2013, the Corporation had three letters of credit totaling approximately $24.9 million outstanding under this credit facility, an outstanding balance drawn of $0 and borrowing capacity available of approximately $50.1 million. |
In order to avoid a Trigger Event or an Adjusted Trigger Event, as defined, the Corporation revolving credit facility requires a Debt Yield and an Adjusted Debt Yield, as defined, of at least 11.5% (with the requirement increasing to 12.0% on and after November 18, 2014), and, to avoid an Event of Default, a Consolidated Leverage Ratio, as defined, of no more than 9.0 to 1.0 (with the requirement decreasing to no more than 8.75 to 1.0 over the life of the facility) and a Debt Yield or Adjusted Debt yield of at least 9.0%. The occurrence of a Trigger Event or an Adjusted Trigger Event requires the Corporation to repay the outstanding facility balance and restricts its ability to draw additional proceeds. As of June 30, 2014, none of these events had occurred. |
ESH REIT Revolving Credit Facility—On November 18, 2013, ESH REIT entered into a $250.0 million revolving credit facility. Subject to the satisfaction of certain criteria, ESH REIT is able to request to increase the facility to an amount up to $350.0 million at any time. The facility provides for the issuance of up to $50.0 million of letters of credit as well as borrowings on same day notice, referred to as swingline loans, in an amount up to $20.0 million. ESH REIT incurs a fee of 0.35% or 0.175% on the unutilized revolver balance, based on the outstanding amount under the facility and a fee of 3.125% on outstanding letters of credit due on the last day of each quarter. Borrowings under the facility bear interest at a rate equal to an adjusted LIBOR rate or a base rate determined by reference to the highest of (i) the prime lending rate, (ii) the overnight federal funds rate plus 0.5% or (iii) the one-month adjusted LIBOR rate plus 1.0%, plus an applicable margin of 2.00% for base rate loans and 3.00% for LIBOR loans. There is no scheduled amortization under the facility and the facility matures on November 18, 2016, subject to a one-year extension option. As of June 30, 2014 and December 31, 2013, ESH REIT had no letters of credit outstanding under this credit facility, an outstanding balance drawn of $28.0 million and $20.0 million, respectively, and borrowing capacity available of $222.0 million and $230.0 million, respectively. |
In order to avoid a Trigger Event or an Adjusted Trigger Event, as defined, the ESH REIT revolving credit facility requires a Debt Yield and an Adjusted Debt Yield, as defined, of at least 11.0% (with the requirement increasing to 11.5% on and after November 18, 2014), and a Consolidated Leverage Ratio, as defined, of no more than 9.25 to 1.0 (with the requirement decreasing to no more than 9.0 to 1.0 over the life of the facility). The occurrence of a Trigger Event or an Adjusted Trigger Event requires ESH REIT to repay the outstanding facility balance and restricts its ability to draw additional proceeds. As of June 30, 2014, none of these events had occurred. |
Future Maturities of Debt—The future maturities of debt as of June 30, 2014, are as follows (in thousands): |
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Years Ending | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Remainder of 2014 | | $ | 349,843 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 28,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 350,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thereafter | | | 2,193,132 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 2,920,975 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-1 | Debt maturity includes three one-year extension options, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Debt—As of June 30, 2014 and December 31, 2013, the estimated fair value of ESH REIT’s mortgage, mezzanine and term loans was approximately $2.9 billion and $2.8 billion, respectively. The estimated fair values of mortgage, mezzanine and term loans 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 mortgage, mezzanine and term loans (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available. As of June 30, 2014 and December 31, 2013, the estimated fair value of ESH REIT’s revolving credit facility is equal to its carrying value due to its short-term nature and frequent settlement. |
ESH REIT [Member] | ' |
DEBT | ' |
5. DEBT |
Summary—ESH REIT’s outstanding debt as of June 30, 2014 and December 31, 2013, is as follows (in thousands): |
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| | June 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans payable | | $ | 2,519,843 | | | $ | 2,519,843 | | | | | | | | | | | | | | | | | | | | | | | | | |
Term loans payable, net of discount of $1,868 | | | 373,132 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
Mezzanine loans payable | | | — | | | | 365,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facility | | | 28,000 | | | | 20,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt | | $ | 2,920,975 | | | $ | 2,904,843 | | | | | | | | | | | | | | | | | | | | | | | | | |
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ESH REIT’s outstanding debt as of June 30, 2014 and December 31, 2013, consists of the following (dollars in thousands): |
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| | | | | Outstanding Principal | | | | | | Interest Rate | | | | | | | | |
Loan | | Stated | | | June 30, | | | December 31, | | | Stated Interest | | | June 30, | | | December 31, | | | Maturity Date | | | Amortization | | |
Amount | 2014 | 2013 | Rate (2) | 2014 | 2013 | | |
Mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mortgage Loan - Component A | | $ | 350,000 | | | $ | 349,843 | | | $ | 349,843 | | | | LIBOR(1) + 2.0547 | % | | | 2.2057 | % | | | 2.2227 | % | | | 12/1/14 | (3) | | Interest only | | |
2012 Mortgage Loan - Component B | | | 350,000 | | | | 350,000 | | | | 350,000 | | | | 3.4047 | % | | | 3.4047 | % | | | 3.4047 | % | | | 12/1/17 | | | Interest only | | |
2012 Mortgage Loan - Component C | | | 1,820,000 | | | | 1,820,000 | | | | 1,820,000 | | | | 4.0547 | % | | | 4.0547 | % | | | 4.0547 | % | | | 12/1/19 | | | Interest only | | |
Term facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 Term Loan(4) | | | 375,000 | | | | 373,132 | | | | — | | | | LIBOR(1)(5) + 4.25 | % | | | 5 | % | | | N/A | | | | 6/24/19 | | | Interest only(6) | | |
Mezzanine loans payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mezzanine A Loan | | | 500,000 | | | | — | | | | 168,981 | | | | 8.25 | % | | | N/A | | | | 8.25 | % | | | 12/1/19 | | | Interest only | | |
2012 Mezzanine B Loan | | | 330,000 | | | | — | | | | 111,528 | | | | 9.625 | % | | | N/A | | | | 9.625 | % | | | 12/1/19 | | | Interest only | | |
2012 Mezzanine C Loan | | | 250,000 | | | | — | | | | 84,491 | | | | 11.5 | % | | | N/A | | | | 11.5 | % | | | 12/1/19 | | | Interest only | | |
Revolving credit facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ESH REIT revolving credit facility | | | 250,000 | | | | 28,000 | | | | 20,000 | | | | LIBOR(1) + 3.0 | % | | | 3.1533 | % | | | 3.1646 | % | | | 11/18/16 | (7) | | Interest only | | |
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Total | | | | | | $ | 2,920,975 | | | $ | 2,904,843 | | | | | | | | | | | | | | | | | | | | | |
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-1 | London Interbank Offering Rate. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | ESH REIT is a counterparty to an interest rate cap on one-month LIBOR at 3.0% with a notional amount and maturity date the same as those of 2012 Mortgage Loan Component A. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-3 | ESH REIT has the option to extend the maturity date of Component A of the 2012 Mortgage Loan for up to three consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-4 | The 2014 Term Loan is presented net of an unamortized discount of $1,868 as of June 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-5 | The 2014 Term Loan includes a LIBOR floor of 0.75%. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-6 | There is no scheduled amortization on the 2014 Term Loan; however, subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow, based on ESH REIT’s Consolidated Leverage Ratio, as defined. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-7 | The ESH REIT revolving credit facility is subject to a one-year extension option. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
On June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan, ESH REIT repaid the remaining outstanding balance of $365.0 million of its 2012 Mezzanine Loans. Repayment consisted of approximately $169.0 million of the 2012 Mezzanine A Loan, approximately $111.5 million of the 2012 Mezzanine B Loan and approximately $84.5 million of the 2012 Mezzanine C Loan. During the three and six months ended June 30, 2014, ESH REIT incurred approximately $9.4 million of debt extinguishment and other costs in connection with the 2012 Mezzanine Loan prepayments, consisting of prepayment penalties and other costs of approximately $4.3 million and the write-off of unamortized deferred financing costs of approximately $5.1 million. Debt extinguishment costs are included as a component of interest expense in the accompanying consolidated statements of operations. |
Mortgage and Mezzanine Loans |
On November 30, 2012, ESH REIT entered into a $2.52 billion mortgage loan comprised of three components (the “2012 Mortgage Loan”) and three mezzanine loans totaling $1.08 billion (the “2012 Mezzanine Loans”). Monthly interest-only payments for the 2012 Mortgage Loan total approximately $7.8 million and are due on the first day of each calendar month. |
Subsequent to the Offering, in the fourth quarter of 2013, ESH REIT repaid $715.0 million of the 2012 Mezzanine Loans. Repayment consisted of approximately $331.0 million of the 2012 Mezzanine A Loan, approximately $218.5 million of the 2012 Mezzanine B Loan and approximately $165.5 million of the 2012 Mezzanine C Loan. As discussed above, on June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan, ESH REIT repaid the remaining outstanding balance of $365.0 million of the 2012 Mezzanine Loans. |
The occurrence of a Mortgage Loan Event of Default, a Debt Yield Trigger Event (a Debt Yield, as defined, of less than 9.0%), or a Guarantor Bankruptcy triggers a Cash Trap Event, as defined. During the period of a Cash Trap Event, any excess cash flow, after all monthly requirements (including the payment of management fees and operating expenses) are fully funded, is held by the loan service agent as additional collateral for the 2012 Mortgage Loan. As of June 30, 2014, none of these events had occurred. |
All receipts from 680 of 684 of ESH REIT’s hotel properties which serve as collateral for the 2012 Mortgage Loan are required to be deposited into a domestic cash management account (“CMA’’) for hotels in the U.S. and a Canadian CMA for hotels in Canada. Such CMAs are under the control of the loan service agent as specified by the terms of the mortgage loan agreement and cash management agreement and are, therefore, classified as restricted cash. Receipts are allocated to CMA subaccounts for hotel occupancy/goods and services sales taxes, property taxes, insurance, ground leases, operating expenses (including management fees and reimbursements), capital improvements and mortgage debt service. Funds in excess of a month’s Canadian waterfall requirements are converted to U.S. dollars and transferred to the domestic CMA. Funds in excess of a month’s domestic waterfall requirements are distributed to the Corporation and/or ESH REIT so long as no Cash Trap Event has occurred. |
ESH REIT Term Facility |
On June 23, 2014, ESH REIT entered into a $375.0 million term loan facility (the “2014 Term Loan”). ESH REIT used the term loan proceeds to repay the outstanding balance on its 2012 Mezzanine Loans of $365.0 million. Subject to certain conditions, the principal amount of the 2014 Term Loan may be increased from time to time up to an amount which would not cause the Consolidated Leverage Ratio, as defined, to exceed 5.25 to 1.0. The 2014 Term Loan matures on June 24, 2019 and bears interest at a rate equal to (i) LIBOR (subject to a floor of 0.75%) plus 4.25%, or (ii) a base rate (determined by reference to the highest of (1) prime lending rate, (2) the overnight federal funds rate plus 0.5%, or (3) the one-month adjusted LIBOR rate (subject to a floor of 0.75%) plus 1.0%) plus 3.25%. There is no scheduled amortization on the 2014 Term Loan; however, subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow, based on ESH REIT’s Consolidated Leverage Ratio, as defined. |
As of June 30, 2014, the outstanding principal amount on the 2014 Term Loan was approximately $373.1 million, net of an unamortized discount of approximately $1.9 million |
Obligations under the 2014 Term Loan are primarily secured by a first-priority security interest in all of the assets of ESH REIT on a pari passu basis with obligations under the ESH REIT revolving credit facility, discussed below. The 2014 Term Loan may be repaid prior to its maturity, subject to the following prepayment penalties: (a) prior to June 24, 2015, a make whole premium equal to the sum of the present value at such date of all interest that would accrue on the portion of the loans being prepaid from such date to and including June 23, 2015, and an amount equal to 2.0% of the aggregate principal amount prepaid; (b) on or after June 24, 2015 but on or prior to December 24, 2015, 2.0% of the aggregate principal amount repaid; and (c) on or after December 24, 2015 but prior to June 24, 2016, 1.0% of the aggregate principal amount repaid. Repayments on or after June 24, 2016 require no prepayment penalties. |
During a Trigger Event, an Adjusted Trigger Event, a Default or an Event of Default, each as defined in the 2014 Term Loan, ESH will be restricted from making cash dividends, subject to certain exceptions. As of June 30, 2014, none of these events had occurred. |
Revolving Credit Facility |
On November 18, 2013, ESH REIT entered into a $250.0 million revolving credit facility. Subject to the satisfaction of certain criteria, ESH REIT is able to request to increase the facility to an amount up to $350.0 million at any time. The facility provides for the issuance of up to $50.0 million of letters of credit as well as borrowings on same day notice, referred to as swingline loans, in an amount up to $20.0 million. ESH REIT incurs a fee of 0.35% or 0.175% on the unutilized revolver balance, based on the outstanding amount under the facility and a fee of 3.125% on outstanding letters of credit due on the last day of each quarter. Borrowings under the facility bear interest at a rate equal to an adjusted LIBOR rate or a base rate determined by reference to the highest of (i) the prime lending rate, (ii) the overnight federal funds rate plus 0.5% or (iii) the one-month adjusted LIBOR rate plus 1.0%, plus an applicable margin of 2.00% for base rate loans and 3.00% for LIBOR loans. There is no scheduled amortization under the facility and the facility matures on November 18, 2016, subject to a one-year extension option. As of June 30, 2014 and December 31, 2013, ESH REIT had no letters of credit outstanding under this credit facility, an outstanding balance drawn of $28.0 million and $20.0 million, respectively, and borrowing capacity available of $222.0 million and $230.0 million, respectively. |
In order to avoid a Trigger Event or an Adjusted Trigger Event, as defined, the ESH REIT revolving credit facility requires a Debt Yield and an Adjusted Debt Yield, as defined, of at least 11.0% (with the requirement increasing to 11.5% on and after November 18, 2014), and a Consolidated Leverage Ratio, as defined, of no more than 9.25 to 1.0 (with the requirement decreasing to no more than 9.0 to 1.0 over the life of the facility). The occurrence of a Trigger Event or an Adjusted Trigger Event requires ESH REIT to repay the outstanding facility balance and restricts its ability to draw additional proceeds. As of June 30, 2014, none of these events had occurred. |
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Future Maturities of Debt—The future maturities of debt as of June 30, 2014, are as follows (in thousands): |
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Years Ending | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Remainder of 2014 | | | 349,843 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 28,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 350,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thereafter | | | 2,193,132 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 2,920,975 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-1 | Debt maturity includes three one-year extension options, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Debt—As of June 30, 2014 and December 31, 2013, the estimated fair value of ESH REIT’s mortgage, mezzanine and term loans was approximately $2.9 billion and $2.8 billion, respectively. The estimated fair values of mortgage, mezzanine and term loans 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 mortgage, mezzanine and term loans (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available. As of June 30, 2014 and December 31, 2013, the estimated fair value of ESH REIT’s revolving credit facility is equal to its carrying value due to its short-term nature and frequent settlement. |