Debt | 3 Months Ended |
Mar. 31, 2015 |
Debt | 6. DEBT |
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Summary—The Company’s outstanding debt as of March 31, 2015 and December 31, 2014, is as follows (in thousands): |
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| | March 31, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans payable | | $ | 2,518,049 | | | $ | 2,518,049 | | | | | | | | | | | | | | | | | | | | | | | |
Term loan facility payable, net of unaccreted discount of $1,586 and $1,680 | | | 364,877 | | | | 373,320 | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facilities | | | 25,000 | | | | — | | | | | | | | | | | | | | | | | | | | | | | |
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Total debt | | $ | 2,907,926 | | | $ | 2,891,369 | | | | | | | | | | | | | | | | | | | | | | | |
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The Company’s outstanding debt as of March 31, 2015 and December 31, 2014, consists of the following (in thousands): |
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| | | | | Outstanding Principal | | | | | | Interest Rate | | | | | | |
| | Stated | | | March 31, | | | December 31, | | | Stated Interest | | | March 31, | | | December 31, | | | Maturity | | | |
Loan | | Amount | | | 2015 | | | 2014 | | | Rate | | | 2015 | | | 2014 | | | Date | | | Amortization |
Mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mortgage Loan - | | $ | 350,000 | | | $ | 348,049 | | | $ | 348,049 | | | | LIBOR(1)(2) + 2.0547 | % | | | 2.231 | % | | | 2.226 | % | | | 12/1/15 | (3) | | Interest only |
Component A |
2012 Mortgage Loan - | | | 350,000 | | | | 350,000 | | | | 350,000 | | | | 3.4047 | % | | | 3.4047 | % | | | 3.4047 | % | | | 12/1/17 | | | Interest only |
Component B |
2012 Mortgage Loan - | | | 1,820,000 | | | | 1,820,000 | | | | 1,820,000 | | | | 4.0547 | % | | | 4.0547 | % | | | 4.0547 | % | | | 12/1/19 | | | Interest only |
Component C |
Term loan facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 Term Loan (4) | | | 375,000 | | | | 364,877 | | | | 373,320 | | | | LIBOR(1)(5) + 4.25 | % | | | 5 | % | | | 5 | % | | | 6/24/19 | | | Interest only(6) |
Revolving credit facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporation Revolving | | | 50,000 | | | | — | | | | — | | | | LIBOR(1) + 3.75 | % | | | N/A | | | | N/A | | | | 11/18/16 | (7) | | Interest only |
Credit Facility |
ESH REIT Revolving | | | 250,000 | (8) | | | 25,000 | | | | — | | | | LIBOR(1) + 3.00 | % | | | 3.174 | % | | | N/A | | | | 11/18/16 | (7) | | Interest only |
Credit Facility |
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Total | | | | | | $ | 2,907,926 | | | $ | 2,891,369 | | | | | | | | | | | | | | | | | | | |
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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 stated notional amount of approximately $348.0 million and a maturity date the same as that of Component A of the 2012 Mortgage Loan. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-3 | ESH REIT has the option to extend the maturity date for two consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-4 | As of March 31, 2015 and December 31, 2014, the 2014 Term Loan is presented net of an unaccreted discount of approximately $1.6 million and $1.7 million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-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, each as defined. ESH REIT made a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-7 | Each revolving credit facility is subject to a one-year extension option. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-8 | ESH REIT is able to request to increase the facility to an amount up to $350.0 million at any time, subject to certain criteria. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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ESH REIT Mortgage Loans |
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On November 30, 2012, ESH REIT entered into a $2.52 billion mortgage loan comprised of three components (the “2012 Mortgage Loan”). The 2012 Mortgage Loan requires interest-only payments of approximately $7.9 million due on the first day of each calendar month. Principal amounts, interest rates and maturities of components of the 2012 Mortgage Loan are included in the table above. |
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In December 2014, ESH REIT exercised its first one-year extension option and extended the maturity date of Component A of the 2012 Mortgage Loan to December 1, 2015. ESH REIT has the option to extend the maturity date of this Component for up to two additional consecutive one-year periods, subject to certain conditions. The 2015 extension conditions include adequate written notice of such extension, the extension or renewal of an interest rate cap, and the requirement that none of the borrowing entities be in default, as defined. The 2016 extension conditions include the same conditions as the 2015 extension, as well as the requirement of an Extension Debt Yield, as defined, of at least 17.5%. |
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Substantially all of ESH REIT’s hotel properties serve as collateral for the 2012 Mortgage Loan. Under certain limited circumstances, losses related to the 2012 Mortgage Loan and costs incurred by the lenders are guaranteed by certain of the Corporation’s subsidiaries up to an aggregate liability of $252.0 million. |
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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, each 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 March 31, 2015, none of these events had occurred. |
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All receipts from the mortgaged properties 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 agreements and are therefore classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets. Receipts are allocated to CMA subaccounts for hotel occupancy/goods and services sales taxes, real estate 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 Mezzanine Loans |
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On November 30, 2012, ESH REIT entered into three mezzanine loans totaling $1.08 billion (the “2012 Mezzanine Loans”). The 2012 Mezzanine Loans would have matured on December 1, 2019, with all outstanding principal and unpaid interest due on that date; however, during 2013, ESH REIT repaid $715.0 million of the 2012 Mezzanine Loans and on June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan (as defined below), ESH REIT repaid the remaining outstanding balance of $365.0 million of the 2012 Mezzanine Loans, which had a weighted-average interest rate of 9.4%. |
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ESH REIT Term Loan Facility |
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On June 23, 2014, ESH REIT entered into a $375.0 million term loan facility (the “2014 Term Loan”). ESH REIT used principally all of the 2014 Term Loan net 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) the 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, each as defined. For the period from July 1, 2014 through December 31, 2014, ESH REIT’s Excess Cash Flow, as defined, totaled approximately $17.1 million, which required ESH REIT to make a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. |
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As of March 31, 2015 and December 31, 2014, the outstanding balance on the 2014 Term Loan was approximately $364.9 million and $373.3 million, respectively, net of an unaccreted discount of approximately $1.6 million and $1.7 million, respectively. |
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Obligations under the 2014 Term Loan are primarily secured by a first-priority security interest in substantially all assets of ESH REIT on a pari passu basis with obligations under the ESH REIT Revolving Credit Facility (as defined 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 penalty. |
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During a Trigger Event, an Adjusted Trigger Event, a Default or an Event of Default, each as defined, ESH REIT is restricted from making cash distributions, subject to certain exceptions. As of March 31, 2015, none of these events had occurred. |
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Revolving Credit Facilities |
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Corporation Revolving Credit Facility—On November 18, 2013, the Corporation entered into a revolving credit facility (the “Corporation Revolving Credit Facility”) of $75.0 million. On November 18, 2014, the borrowing availability under the facility decreased 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 March 31, 2015 and December 31, 2014, the Corporation had one letter of credit outstanding under this facility of $3.6 million, an outstanding balance drawn of $0 and borrowing capacity available of $46.4 million. |
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In order to avoid a Trigger Event or an Adjusted Trigger Event, the Corporation Revolving Credit Facility requires a Debt Yield and an Adjusted Debt Yield, each as defined, of at least 12.0%, 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 remaining 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 March 31, 2015, none of these events had occurred. |
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ESH REIT Revolving Credit Facility—On November 18, 2013, ESH REIT entered into a $250.0 million revolving credit facility (the “ESH REIT 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 March 31, 2015 and December 31, 2014, ESH REIT had no letters of credit outstanding under this facility, an outstanding balance drawn of $25.0 million and $0, respectively, and borrowing capacity available of $225.0 million and $250.0 million, respectively. |
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In order to avoid a Trigger Event or an Adjusted Trigger Event, the ESH REIT Revolving Credit Facility requires a Debt Yield and an Adjusted Debt Yield, each as defined, of at least 11.5%, and, to avoid an Event of Default, 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 remaining 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 ESH REIT to repay the outstanding facility balance and restricts its ability to draw additional proceeds. As of March 31, 2015, none of these events had occurred. |
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Future Maturities of Debt—The future maturities of debt as of March 31, 2015, are as follows (in thousands): |
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Years Ending December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Remainder of 2015 | | $ | 348,049 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 25,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 350,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | 2,184,877 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thereafter | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 2,907,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-1 | ESH REIT has the option to extend the maturity date of Component A of the 2012 Mortgage Loan for two consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | The 2014 Term Loan is presented net of an unaccreted discount of approximately $1.6 million as of March 31, 2015. Subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow based on ESH REIT’s Consolidated Leverage Ratio, each as defined. ESH REIT made a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Fair Value of Debt—As of March 31, 2015 and December 31, 2014, the estimated fair value of ESH REIT’s mortgage and term loans was approximately $2.9 billion. The estimated fair values of mortgage 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 and term loans (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available. As of March 31, 2015, the estimated fair value of the ESH REIT Revolving Credit Facility was equal to its carrying value due to its short-term nature and frequent settlement. |
ESH REIT [Member] | |
Debt | 5. DEBT |
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Summary—ESH REIT’s outstanding debt as of March 31, 2015 and December 31, 2014, is as follows (in thousands): |
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| | March 31, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans payable | | $ | 2,518,049 | | | $ | 2,518,049 | | | | | | | | | | | | | | | | | | | | | | | |
Term loan facility payable, net of unaccreted discount of $1,586 and $1,680 | | | 364,877 | | | | 373,320 | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facility | | | 25,000 | | | | — | | | | | | | | | | | | | | | | | | | | | | | |
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Total debt | | $ | 2,907,926 | | | $ | 2,891,369 | | | | | | | | | | | | | | | | | | | | | | | |
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ESH REIT’s outstanding debt as of March 31, 2015 and December 31, 2014, consists of the following (in thousands): |
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| | | | | Outstanding Principal | | | | | | Interest Rate | | | | | | |
| | Stated | | | March 31, | | | December 31, | | | Stated Interest | | | March 31, | | | December 31, | | | Maturity | | | |
Loan | | Amount | | | 2015 | | | 2014 | | | Rate | | | 2015 | | | 2014 | | | Date | | Amortization |
Mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Mortgage Loan - Component A | | $ | 350,000 | | | $ | 348,049 | | | $ | 348,049 | | | | LIBOR(1)(2) + 2.0547 | % | | | 2.231 | % | | | 2.226 | % | | | 12/1/15 | (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 loan facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 Term Loan (4) | | | 375,000 | | | | 364,877 | | | | 373,320 | | | | LIBOR(1)(5) + 4.25 | % | | | 5 | % | | | 5 | % | | | 6/24/19 | | | Interest only (6) |
Revolving credit facility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ESH REIT Revolving Credit Facility | | | 250,000 | (8) | | | 25,000 | | | | — | | | | LIBOR(1) + 3.00 | % | | | 3.174 | % | | | N/A | | | | 11/18/16 | (7) | | Interest only |
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Total | | | | | | $ | 2,907,926 | | | $ | 2,891,369 | | | | | | | | | | | | | | | | | | | |
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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 stated notional amount of approximately $348.0 million and a maturity date the same as that of Component A of the 2012 Mortgage Loan. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-3 | ESH REIT has the option to extend the maturity date for two consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-4 | As of March 31, 2015 and December 31, 2014, the 2014 Term Loan is presented net of an unaccreted discount of approximately $1.6 million and $1.7 million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-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, each as defined. ESH REIT made a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-7 | The ESH REIT Revolving Credit Facility is subject to a one-year extension option. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-8 | ESH REIT is able to request to increase the facility to an amount up to $350.0 million at any time, subject to certain criteria. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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ESH REIT Mortgage Loans |
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On November 30, 2012, ESH REIT entered into a $2.52 billion mortgage loan comprised of three components (the “2012 Mortgage Loan”). The 2012 Mortgage Loan requires interest-only payments of approximately $7.9 million due on the first day of each calendar month. Principal amounts, interest rates and maturities of components of the 2012 Mortgage Loan are included in the table above. |
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In December 2014, ESH REIT exercised its first one-year extension option and extended the maturity date of Component A of the 2012 Mortgage Loan to December 1, 2015. ESH REIT has the option to extend the maturity date of this Component for up to two additional consecutive one-year periods, subject to certain conditions. The 2015 extension conditions include adequate written notice of such extension, the extension or renewal of an interest rate cap, and the requirement that none of the borrowing entities be in default, as defined. The 2016 extension conditions include the same conditions as the 2015 extension, as well as the requirement of an Extension Debt Yield, as defined, of at least 17.5%. |
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Substantially all of ESH REIT’s hotel properties serve as collateral for the 2012 Mortgage Loan. Under certain limited circumstances, losses related to the 2012 Mortgage Loan and costs incurred by the lenders are guaranteed by certain of the Corporation’s subsidiaries up to an aggregate liability of $252.0 million. |
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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, each 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 March 31, 2015, none of these events had occurred. |
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All receipts from the mortgaged properties 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 agreements and are therefore classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets. Receipts are allocated to CMA subaccounts for hotel occupancy/goods and services sales taxes, real estate 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 Mezzanine Loans |
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On November 30, 2012, ESH REIT entered into three mezzanine loans totaling $1.08 billion (the “2012 Mezzanine Loans”). The 2012 Mezzanine Loans would have matured on December 1, 2019, with all outstanding principal and unpaid interest due on that date; however, during 2013, ESH REIT repaid $715.0 million of the 2012 Mezzanine Loans and on June 23, 2014, using principally all of the net proceeds from its 2014 Term Loan (as defined below), ESH REIT repaid the remaining outstanding balance of $365.0 million of the 2012 Mezzanine Loans, which had a weighted-average interest rate of 9.4%. |
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ESH REIT Term Loan Facility |
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On June 23, 2014, ESH REIT entered into a $375.0 million term loan facility (the “2014 Term Loan”). ESH REIT used principally all of the 2014 Term Loan net 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) the 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, each as defined. For the period from July 1, 2014 through December 31, 2014, ESH REIT’s Excess Cash Flow, as defined, totaled approximately $17.1 million, which required ESH REIT to make a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. |
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As of March 31, 2015 and December 31, 2014, the outstanding balance on the 2014 Term Loan was approximately $364.9 million and $373.3 million, respectively, net of an unaccreted discount of approximately $1.6 million and $1.7 million, respectively. |
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Obligations under the 2014 Term Loan are primarily secured by a first-priority security interest in substantially all assets of ESH REIT on a pari passu basis with obligations under the ESH REIT Revolving Credit Facility (as defined 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 penalty. |
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During a Trigger Event, an Adjusted Trigger Event, a Default or an Event of Default, each as defined, ESH REIT is restricted from making cash distributions, subject to certain exceptions. As of March 31, 2015, none of these events had occurred. |
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ESH REIT Revolving Credit Facility |
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On November 18, 2013, ESH REIT entered into a $250.0 million revolving credit facility (the “ESH REIT 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 March 31, 2015 and December 31, 2014, ESH REIT had no letters of credit outstanding under this facility, an outstanding balance drawn of $25.0 million and $0, respectively, and borrowing capacity available of $225.0 million and $250.0 million, respectively. |
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In order to avoid a Trigger Event or an Adjusted Trigger Event, the ESH REIT Revolving Credit Facility requires a Debt Yield and an Adjusted Debt Yield, each as defined, of at least 11.5%, and, to avoid an Event of Default, 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 remaining 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 ESH REIT to repay the outstanding facility balance and restricts its ability to draw additional proceeds. As of March 31, 2015, none of these events had occurred. |
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Future Maturities of Debt—The future maturities of debt as of March 31, 2015, are as follows (in thousands): |
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Years Ending December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Remainder of 2015 | | $ | 348,049 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 25,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 350,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | 2,184,877 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thereafter | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 2,907,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-1 | ESH REIT has the option to extend the maturity date of Component A of the 2012 Mortgage Loan for two consecutive one-year periods, subject to limited conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | The 2014 Term Loan is presented net of an unaccreted discount of approximately $1.6 million as of March 31, 2015. Subject to certain exceptions, mandatory prepayments are required up to 50% of Excess Cash Flow based on ESH REIT’s Consolidated Leverage Ratio, each as defined. ESH REIT made a mandatory prepayment of approximately $8.5 million during the three months ended March 31, 2015. An additional mandatory prepayment may be required during the three months ended March 31, 2016 based on the calculation of the Excess Cash Flow for the year ended December 31, 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Fair Value of Debt—As of March 31, 2015 and December 31, 2014, the estimated fair value of ESH REIT’s mortgage and term loans was approximately $2.9 billion. The estimated fair values of mortgage 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 and term loans (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available. As of March 31, 2015, the estimated fair value of the ESH REIT Revolving Credit Facility was equal to its carrying value due to its short-term nature and frequent settlement. |