Share-Based Compensation | 3 Months Ended |
Mar. 31, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Share-Based Compensation | ' |
Share-Based Compensation |
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2013 Omnibus Incentive Plan |
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In February 2014, we issued time-vesting restricted stock units ("RSUs"), nonqualified stock options ("options") and performance-vesting restricted stock units ("performance shares") under the 2013 Omnibus Incentive Plan. |
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We recorded share-based compensation expense for awards granted under the 2013 Omnibus Incentive Plan of $11 million during the three months ended March 31, 2014, which includes amounts reimbursed by hotel owners. As of March 31, 2014, unrecognized compensation costs for unvested awards was approximately $174 million, which is expected to be recognized over a weighted-average period of 2.4 years on a straight-line basis. |
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As of March 31, 2014, there were 72,314,544 shares of common stock available for future issuance under the 2013 Omnibus Incentive Plan. |
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Restricted Stock Units |
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During the three months ended March 31, 2014, we issued 7,066,153 RSUs with a grant-date fair value of $21.53. The RSUs vest in annual installments over two or three years from the date of grant, subject to the individual’s continued employment through the applicable vesting date. Vested RSUs generally will be settled for our common stock, with the exception of certain awards that will be settled in cash. |
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Stock Options |
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During the three months ended March 31, 2014, we issued 1,003,591 options with an exercise price of $21.53. As of March 31, 2014, no options were exercisable. The options vest over three years in equal installments from the date of grant, subject to the individual’s continued employment through the applicable vesting date, and will terminate 10 years from the date of grant or earlier if the individual’s service terminates. The exercise price is equal to the closing price of the Company’s common stock on the date of grant. |
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The grant date fair value of each of these option grants was $7.58, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions: |
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Expected volatility(1) | 33 | % |
Dividend yield(2) | — | % |
Risk-free rate(3) | 1.85 | % |
Expected term (in years)(4) | 6 | |
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-1 | Due to limited trading history for our common stock, we did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of our share price. As a result, we used an average historical volatility of our peer group over a time period consistent with our expected term assumption. Our peer group was determined based upon companies in our industry with similar business models and is consistent with those used to benchmark our executive compensation. | |
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-2 | We have no foreseeable plans to pay dividends during the expected term of these options. | |
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-3 | Based on the yields of U.S. Department of Treasury instruments with similar expected lives. | |
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(4) | Estimated using the average of the vesting periods and the contractual term of the options. | |
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Performance Shares |
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During the three months ended March 31, 2014, we issued 1,078,908 performance shares. The performance shares are settled at the end of the three-year performance period with 50 percent of the shares subject to achievement based on a measure of (1) the Company’s total shareholder return relative to the total shareholder returns of members of a peer company group ("relative shareholder return") and the other 50 percent of the shares subject to achievement based on (2) the Company’s earnings before interest expense, taxes and depreciation and amortization ("EBITDA") compound annual growth rate ("EBITDA CAGR"). The total number of performance shares that vest based on each performance measure (relative shareholder return and EBITDA CAGR) is based on an achievement factor which, in each case, ranges from a zero to 200 percent payout. |
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The grant date fair value of each of the performance shares based on relative shareholder return was $23.56, which was determined using a Monte Carlo simulation valuation model with the following assumptions: |
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Expected volatility(1) | 30 | % |
Dividend yield(2) | — | % |
Risk-free rate(3) | 0.7 | % |
Expected term (in years)(4) | 2.8 | |
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-1 | Due to limited trading history for our common stock, we did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of our share price. As a result, we used an average historical volatility of our peer group over a time period consistent with our expected term assumption. Our peer group was determined based upon companies in our industry with similar business models and is consistent with those used to benchmark our executive compensation. | |
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-2 | We have no foreseeable plans to pay dividends during the expected term of these performance shares. | |
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-3 | Based on the yields of U.S. Department of Treasury instruments with similar expected lives. | |
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-4 | Midpoint of the 30-calendar day period preceding the end of the performance period. | |
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The grant-date fair value of each of the performance shares based on our EBITDA CAGR was $21.53. For these shares, we determined that the performance condition is probable of achievement and during the three months ended March 31, 2014, recognized compensation expense at the target amount of 100 percent. |
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As of March 31, 2014, 1,078,908 performance shares were outstanding with a remaining life of 2.8 years. |
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Promote Plan |
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Prior to December 2013, certain members of our senior management team participated in an executive compensation |
plan ("the Promote plan"). Equity awards under the Promote plan were exchanged for restricted shares of common stock in connection with our initial public offering and vest as follows: (1) 40 percent vested immediately; (2) 40 percent of each award will vest on December 11, 2014, contingent upon employment through that date; and (3) 20 percent of each award will vest on the date that our Sponsor and its affiliates cease to own 50 percent or more of the shares of the Company, contingent on employment through that date. |
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During the three months ended March 31, 2014, the vesting conditions of these restricted shares of common stock for certain participants were modified such that the remaining 60 percent of each participant's award will vest in June 2014. As a result of this modification, we recorded incremental compensation expense of $7 million. During the three months ended March 31, 2014, total compensation expense under the Promote plan was $13 million and unrecognized compensation expense as of March 31, 2014 was $84 million, $16 million of which is expected to be recognized through December 2014 and $68 million of which is subject to the achievement of a performance condition. No expense was recognized for the portion of the awards that are subject to the achievement of a performance condition in the form of a liquidity event, since such an event was not probable as of March 31, 2014. |
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We recorded compensation expense related to the Promote plan of $2 million during the three months ended March 31, 2013. |
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Cash-based Long-term Incentive Plan |
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In February 2014, we terminated a cash-based, long-term incentive plan and reversed the associated accruals resulting in a reduction of compensation expense of approximately $25 million for the three months ended March 31, 2014. |