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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Pursuant to §240.14a-12 |
EXTENDED STAY AMERICA, INC.
ESH HOSPITALITY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| ☒ | No fee required. |
| ☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
| ☐ | Fee paid previously with preliminary materials. |
| ☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
EXPLANATORY NOTE
Both Extended Stay America, Inc. and ESH Hospitality, Inc. have securities that have been registered under the Securities Act of 1933, as amended, which are publicly traded and listed on the New York Stock Exchange as paired shares. Each paired share consists of one share of common stock of Extended Stay America, Inc. that is attached to and trades as a single unit with one share of Class B common stock of ESH Hospitality, Inc. Accordingly, the Proxy Statements of Extended Stay America, Inc., and its controlled subsidiary, ESH Hospitality, Inc., are each included in this filing on Schedule 14A. Each registrant hereto is filing on its own behalf all of the information contained in this filing that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.
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and your Board Chair
Dear Shareholder,
2017 was a milestone year for Extended Stay America as we completed our transition from a controlled company under private equity ownership to a fully independent public company. We’re proud of everything we accomplished:
We evolved. With the exit of our private equity sponsors, we:
| ñ | Completed our transition from a “controlled company” under New York Stock Exchange guidelines to an independent public company |
| ñ | Elected a fully-independent Board (other than our President and CEO) with committees composed solely of independent directors |
| ñ | Further diversified our Board, with three of our seven seats now held by women |
| ñ | Added Board members with further expertise in retail, distribution, marketing, and development |
We listened. In response to what you told us during last proxy season, we:
| ñ | Adopted different performance measures for our annual and long-term incentive plans, respectively |
| ñ | Adopted a clawback policy |
| ñ | Adopted a double-trigger change-in-control policy for equity grants under our long-term incentive plan |
| ñ | Used our CEO transition as an opportunity to implement a CEO pay package that is benchmarked to our peers, programmatically consistent with the compensation we pay to our other executives, and aligned with your interests |
We acted. We unilaterally:
| ñ | Adopted proxy access |
| ñ | Adopted a majority voting standard for uncontested director elections |
| ñ | Adopted annual say-on-pay voting |
| ñ | Recognized the financial expertise of our Audit Committee in addition to the Chair |
We served. As members of the hundreds of communities we serve through each of our properties throughout the country, we:
| ñ | Continued our partnership with the American Cancer Society to provide free and discounted rooms to cancer patients seeking treatment and to their families |
| ñ | Saved over 416,643,000 gallons of water, 30,894,000 kwh of electricity and 61,000 mmbtu of natural gas through our conservation efforts since 2012 |
| ñ | Continued our efforts to combat human trafficking |
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2018 PROXY STATEMENT | i |
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| from your President and CEO | ||||
| and your Board Chair
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We performed. Continuing to drive premium shareholder returns, we:
| ñ | Earned net income of $172 million and grew Adjusted EBITDA to $623 million, a Company record |
| ñ | Returned $220 million to you through dividends and share repurchases |
| ñ | Invested $166 million in capital expenditures |
| ñ | Retired $75 million in debt |
With that backdrop, it is once again time for our Annual Meeting of Shareholders. This Proxy Statement tells you when and where the meeting will take place and how you can vote your shares. For each matter that we are asking you to vote upon, it gives you the background information you will need in order to make your decision.
Thank you for exercising your voting rights. And thank you for investing in Extended Stay America.
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| Jonathan S. Halkyard | Douglas G. Geoga | |
| President and Chief Executive Officer | Chair of the Board of Directors |
| ii | 2018 PROXY STATEMENT |
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annual meeting
EXTENDED STAY AMERICA, INC.
11525 N. Community House Road, Suite 100
Charlotte, North Carolina 28277
(980) 345-1600
www.aboutstay.com
Notice Of Annual Meeting Of Shareholders
To Be Held On May 16, 2018
Extended Stay America, Inc. will hold its 2018 Annual Meeting of Shareholders (the “Annual Meeting”) on Wednesday, May 16, 2018 at 8:00 a.m. (Eastern Daylight Time), at the Everett Building, Suite 100, 11525 N. Community House Road, Charlotte, North Carolina 28277, for the following purposes:
| ñ | To elect seven directors to hold office until the 2019 annual meeting of shareholders or until their successors are duly elected and qualified; |
| ñ | To approve, on an advisory basis, the compensation paid to our named executive officers; |
| ñ | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and |
| ñ | To transact any other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. |
Shareholders of record at the close of business on April 5, 2018 are entitled to receive notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.
This Notice and the enclosed Proxy Statement and Proxy Card are first being made available to shareholders on or about April 16, 2018.
By Order of the Board of Directors,
John R. Dent
General Counsel and Corporate Secretary
Charlotte, North Carolina
April 16, 2018
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2018 PROXY STATEMENT | iii |
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summary
We are furnishing this Proxy Statement to you as part of a solicitation by the Board of Directors (the “Board”) of Extended Stay America, Inc., a Delaware corporation, of proxies to be voted at our 2018 Annual Meeting of Shareholders and at any reconvened meeting after an adjournment or postponement of the meeting (the “Annual Meeting”). Unless the context otherwise requires, all references in this Proxy Statement to the “Corporation,” “Extended Stay America,” “Extended Stay,” “we,” “us,” and “our” refer to Extended Stay America, Inc. and its subsidiaries, excluding ESH Hospitality, Inc. (“ESH REIT”). All references in this Proxy Statement to the “Company” refer to the Corporation, ESH REIT and their subsidiaries considered as a single enterprise.
Our telephone number is (980) 345-1600, and our mailing address is 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. Our website is located at www.esa.com. The inclusion of our website address here and elsewhere in this Proxy Statement does not include or incorporate by reference the information on our website into this Proxy Statement. The information contained on, or that can be accessed through, our website is not a part of this Proxy Statement.
IMPORTANT INFORMATION REGARDING THE AVAILABILITY OF PROXY MATERIALS
As permitted by the rules of the Securities and Exchange Commission (“SEC”), we have elected to send you this full set of proxy materials, including a proxy card, and additionally to notify you of the availability of these proxy materials on the Internet. The Notice of Meeting, Proxy Statement, Proxy Card and 2017 Annual Report, which includes our combined annual report on Form 10-K for the year ended December 31, 2017, are available free of charge on the investor relations section of our website (www.aboutstay.com) or at www.proxyvote.com.
YOUR VOTE IS VERY IMPORTANT. PLEASE CAREFULLY READ THE ATTACHED PROXY STATEMENT. EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, EXECUTE, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. YOU MAY ALSO VOTE ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. IF YOU VOTE BY INTERNET OR TELEPHONE, YOU DO NOT NEED TO RETURN A WRITTEN PROXY CARD BY MAIL. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
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| proxy summary |
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2018, 8:00 A.M. (EASTERN DAYLIGHT TIME)
Everett Building, Suite 100
11525 N. Community House Road
Charlotte, North Carolina 28277
Purposes:
| 1 | To elect seven directors to hold office until the 2019 annual meeting of shareholders or until their successors are duly elected and qualified | 2 | To approve, on an advisory basis, the compensation paid to our named executive officers | 3 | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018 | 4 | To transact any other business as may properly come before the Annual Meeting or any adjournments or postponements thereof |
| Proposal | How may I vote? |
What does the Board recommend? | ||||
| 1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
You may:
ñ (i) vote FOR the election of all nominees named herein;
ñ (ii) withhold authority to vote for all such nominees; or
ñ (iii) vote FOR the election of all such nominees other than any nominees with respect to whom the vote is specifically withheld by indicating in the space provided on the proxy.
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The Board recommends that you vote FOR all seven of the director nominees. | ||||
| 2. An advisory vote on the Corporation’s executive compensation. |
You may vote FOR or AGAINST the approval, on an advisory basis, of the Corporation’s executive compensation, or you may indicate that you wish to ABSTAIN from voting on the matter.
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The Board recommends that you vote FOR the approval, on an advisory basis, of the Corporation’s executive compensation. | ||||
| 3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
You may vote FOR or AGAINST the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, or you may indicate that you wish to ABSTAIN from voting on the matter. | The Board recommends that you vote FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. | ||||
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in review
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Extended Stay America is the largest integrated owner/operator of company-branded hotels in North America. Our business operates in the extended stay segment of the lodging industry, and as of December 31, 2017, we owned and operated 624 hotel properties comprising approximately 68,600 rooms located in 44 states across the United States. |
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We operate all of our hotels under the Extended Stay America brand, which serves the mid-price extended stay segment and accounts for approximately 45% of the segment by number of rooms in the United States. For the year ended December 31, 2017, we had total revenues of approximately $1.3 billion, net income of approximately $172.2 million and Adjusted EBITDA of approximately $622.9 million.
Our extended stay hotels are designed to provide an affordable and attractive alternative to traditional lodging or apartment accommodations and are targeted toward self-sufficient, value-conscious guests who need lodging for more than a week. Our hotels feature fully-furnished rooms with in-room kitchens, complimentary grab-and-go breakfast, free WiFi, flat screen TVs and on-site guest laundry. Our guests include business travelers, leisure travelers, professionals on temporary work or training assignments, persons relocating, temporarily displaced or purchasing a home and anyone else in need of temporary housing. For the year ended December 31, 2017, approximately 37.1%, 21.8% and 41.1% of our total revenues were derived from guests with stays from 1-6 nights, from 7-29 nights, and for 30 or more nights, respectively.
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We seek to drive our competitive advantage by targeting our product offering to an underserved market segment and by driving economies of scale through our national distribution and concentration of multiple hotels in individual markets. We focus on continually improving our product and service, improving marketing efforts and driving room rates. In addition to owning and operating hotels, we plan to increase our distribution and create a fee-based income stream by franchising our brand name to unaffiliated third-parties and, in some instances, managing these hotels on behalf of our franchisees. We also plan to increase our efficiency and the overall quality of our real estate portfolio by selling non-strategic hotels over time, in some cases franchising our brand name to, or managing sold hotels for, the buyers. Through the combination of our business model, which we believe maximizes cost efficiency, our efficient capital structure and the ESA 2.0 initiatives described below, we intend to drive superior cash flow and return value to our shareholders. |
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| $1.3 billion |
$172.2 million | $622.9 million | ||||
| 2017 revenues
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2017 net income
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2017 adjusted EBITDA
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| 2017 year in review |
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In 2017, we continued to drive excellent top and bottom line operating results while also making substantial progress on our ESA 2.0 initiatives. Operationally, we grew Comparable Hotel RevPAR by 1.9% and Adjusted EBITDA by 1.2%, despite selling four hotels in May and another in December. Net income per Extended Stay America, Inc. diluted common share grew by 17.1% to $0.41 per share, Adjusted FFO per Diluted Paired Share grew 3.0%, and Adjusted Paired Share Income per Diluted Paired Share grew by 0.5%. The cash flow generated by these results enabled us to increase our dividend for the third consecutive year, to an annualized $0.84 per Paired Share. Together with share repurchases, these dividends allowed us to return more than $220 million to Paired Share holders in 2017 – even while retiring $75 million in debt and investing $166 million in capital expenditures.
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Together with share repurchases, these dividends allowed us to return more than $220 million to Paired Share holders in 2017 – even while retiring over $70 million in debt and investing $160 million in capital expenditures.
At the same time, we built the initial infrastructure for our “ESA 2.0” initiatives to expand and refresh our portfolio through a combination of asset sales, new construction, and franchising. We hired individuals with real estate development and franchising expertise, went live with our first franchise disclosure document, signed purchase agreements for our first new-build property sites, sold four non-strategic properties, and neared completion on other property purchase, sale, franchise, and management transactions. In February 2018, we announced the sale of 25 properties to our first long-term third-party property owner, for whom we will continue to manage the properties for at least two years until the owner exercises its right to convert the properties to independently-managed franchises. The same owner has also agreed to build or convert 15 additional Extended Stay America properties over the coming years. We expect similarly-structured transactions to close throughout 2018, subject to market conditions. |
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Adjusted EBITDA, Adjusted FFO per Diluted Paired Share, and Adjusted Paired Share Income per Diluted Paired Share are non-GAAP measures. We believe that these measures provide useful information regarding results of operations and useful information with respect to management’s ability to evaluate ongoing performance compared to other lodging companies, hotel owners, and other capital-intensive companies, including those which include a REIT as part of their legal entity structure. These measures are not recognized terms under U.S. GAAP. These measures, as calculated by the Company, may not be comparable to the same measures calculated by other companies. These measures should not be considered as alternative measures of, or superior to, operating profit, net income, net income per share or any other measure of the Company, the Corporation, or ESH REIT calculated in accordance with U.S. GAAP. The Company’s presentation of the Non-GAAP Financial Measures does not replace the presentation of the Company’s consolidated financial statements and other disclosures prepared in accordance with U.S. GAAP. For reconciliations of these measures to the most comparable GAAP measures, see “Reconciliation of Non-GAAP Measures.”
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| 2017 year in review |
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viii | 2018 PROXY STATEMENT |
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| 2017 year in review |
| 30,894,000 kwh |
416,643,000 gallons |
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| electricity savings | water savings | |||||
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2018 PROXY STATEMENT | ix |
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| x | 2018 PROXY STATEMENT |
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2018 PROXY STATEMENT | xi |
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contents
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xii | 2018 PROXY STATEMENT |
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election of directors
| 1 |
Proposal No. 1
The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified.
Recommendation
The Board unanimously recommends that you vote “FOR” the election of all seven nominees listed on the Proxy Card.
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Our Board has nominated seven people for election as directors at the Annual Meeting. Each nominee is currently a director of the Corporation. If elected, each nominee will hold office until the next annual meeting of shareholders, or until his or her successor has been duly elected and qualified, subject to a director’s earlier death, resignation or removal. Each nominee has consented to be named in this Proxy Statement and has agreed to serve if elected. If a nominee is unable to serve or for good cause will not serve if elected, the persons named as proxies may vote for a substitute nominee recommended by the Board and, unless you indicate otherwise on the proxy card, your shares will be voted in favor of the Board’s remaining nominees.
We believe each nominee meets the qualifications that have been established for service on our Board. As demonstrated in the following biographies, we believe that the nominees have professional experience in areas that are highly relevant to our strategy and operations, and bring skills and other attributes that make them outstanding candidates to serve on our Board.
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| proposal 1: election of directors |
The following table summarizes information about our nominees as of April 5, 2018.
| Name | Age | Director Since |
Audit Committee |
Compensation Committee |
Nominating |
Independent? | ||||||||||||||||||
| Jonathan S. Halkyard |
53 | 2015 | ||||||||||||||||||||||
| President and Chief |
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| Executive Officer |
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| Douglas G. Geoga |
62 | 2013 | Member* | Chair | ✓ | |||||||||||||||||||
| Board Chair |
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| Kapila K. Anand |
64 | 2016 | Member | Chair | ✓ | |||||||||||||||||||
| Director |
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| Ellen Keszler |
55 | 2018 | Member* | ✓ | ||||||||||||||||||||
| Director |
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| Jodie W. McLean |
49 | 2017 | Member | Member | ✓ | |||||||||||||||||||
| Director |
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| Thomas F. O’Toole |
59 | 2017 | Member | Member | ✓ | |||||||||||||||||||
| Director |
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| Richard F. Wallman |
67 | 2013 | Chair* | Member | Member | ✓ | ||||||||||||||||||
| Director |
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*Audit Committee financial expert
Mr. Halkyard, Mr. Geoga, and Ms. Anand also sit on the Board of Directors of ESH REIT. Under our Corporate Governance Guidelines (as defined below), service on our Board and the Board of ESH REIT constitute a single directorship for purposes of overboarding calculations.
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Our Board has affirmatively determined that each of our directors other than Mr. Halkyard is independent under the rules of the SEC and New York Stock Exchange (the “NYSE”). Detailed information regarding each nominee as of April 5, 2018 is set forth below.
Jonathan S. Halkyard
President and CEO
Other directorships: Dave & Buster’s Entertainment, Inc.
Skills and expertise: Corporate finance, capital markets, operations, strategy, governance, lodging, gaming
Mr. Halkyard was appointed as President and Chief Executive Officer of the Corporation and of ESH REIT effective January 1, 2018. Mr. Halkyard previously served as Chief Financial Officer of the Corporation and ESH REIT from January 2015 to December 2017, as Chief Operating Officer of the Corporation from October 2013 to December 2014, and as the Interim Chief Financial Officer of the Corporation and ESH REIT from July 2014 to December 2014. From July 2012 to September 2013, Mr. Halkyard served as Executive Vice President and Chief Financial Officer of NV Energy, Inc., a holding company providing energy services and products in Nevada, and its wholly-owned subsidiaries, Nevada Power Company and Sierra Pacific Power Company. From March 1999 to May 2012, Mr. Halkyard held various positions with Caesars Entertainment Corporation (formerly known as Harrah’s Entertainment, Inc.), including Vice President (from 2002 to 2005), Treasurer (from 2003 to 2010), Senior Vice President (from 2005 to 2010), Executive Vice President (from 2010 to 2012) and Chief Financial Officer (from 2006 to 2012).
As our President and Chief Executive Officer with deep experience in adjacent hospitality industries, and as a former Chief Financial Officer of three public companies, Mr. Halkyard provides our Board with valuable insight regarding the Company’s operations, management team, associates and culture. As a result of his day-to-day involvement in the operations of the business, he performs a critical role in Board discussions regarding strategic planning and development for the Company.
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Douglas G. Geoga President and CEO, Salt Creek Hospitality, LLC Independent Board Chair Audit Committee Financial Expert
Other directorships: Kemper Corporation (Audit Committee)
Past directorships: Foundations Recovery Network, LLC (Executive Chair 2012-2015), Carefree Communities Holdings, LLC (Board of Managers)
Skills and expertise: Lodging; operations; real estate development; finance; marketing; branding; corporate governance |
Mr. Geoga has served as Chair of the Board of the Corporation since July 2013 and as Chair of the Board of Directors of ESH REIT since November 2013. Mr. Geoga served as a non-voting member and the Non-Executive Chair of our predecessor entities, ESH Hospitality Holdings LLC (“Holdings”) and ESH Strategies Holdings LLC (“Strategies Holdings”), from October 2010 to November 2013. Mr. Geoga is President and Chief Executive Officer of Salt Creek Hospitality, LLC, a privately-held firm engaged in making investments in the hospitality industry and providing related advisory services. Mr. Geoga also serves as a consultant to Atlantica Investment Holdings Limited, which through affiliated companies is the second largest manager of hotels in Brazil. Since 2002, Mr. Geoga has served, and from November 2002 to December 2009, Mr. Geoga’s primary occupation was serving, as principal of Geoga Group, LLC, an investment and advisory consulting firm focused primarily on the hospitality industry. Until July 2006, Mr. Geoga’s primary occupation was serving as the President of Global Hyatt Corporation and as the President of Hyatt Corporation and the President of AIC Holding Co., the parent corporation of Hyatt International Corporation, then both privately-held subsidiaries of Global Hyatt Corporation which collectively operated the Hyatt chain of hotels throughout the world. In addition, from 2000 through 2005, Mr. Geoga served as President of Hospitality Investment Fund, LLC, a privately-held firm which was engaged in making investments in lodging and hospitality companies and projects.
Mr. Geoga’s history as President of Hyatt Corporation, a global leader in its industry, as well as his extensive experience in private business investment, brings to the Board the perspective of both an operating executive and one who is sophisticated in corporate investments and finance.
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Kapila K. Anand Retired Partner, KPMG Independent Director Audit Committee Financial Expert
Other directorships: Women Corporate Directors Education and Development Foundation (Lead Director)
Non-profit boards: Rush University Medical Center, US Fund for UNICEF
Past directorships: KPMG LLP – Americas, KPMG LLP – U.S., Franciscan Ministries, KPMG Foundation (Chair), Chicago Network (Chair) |
Skills and expertise: Lodging, real estate, REITs, accounting, finance, risk management, corporate governance, internal controls over financial reporting
Ms. Anand has served as a director of the Corporation since July 2016 and as a director of ESH REIT since May 2017. Ms. Anand joined KPMG LLP in 1979 and served in a variety of roles in addition to her role as a partner, including the National Partner-in-Charge, Public Policy Business Initiatives (from 2008 to 2013) and segment leader for the Travel, Leisure, and Hospitality industry and member of the Global Real Estate Steering Committee (each from 2013 to 2016).
Ms. Anand’s extensive experience serving a diverse group of real estate, gaming, private equity and hospitality clients on numerous audit and advisory projects brings to the Board a significant understanding of the financial, real estate and corporate governance issues and risks that affect the Corporation.
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Ellen Keszler President and CEO, Clear Sky Associates Independent Director Audit Committee Financial Expert
Other directorships: PROS Holdings, Inc. (Audit Committee, Nominating and Corporate Governance Committee)
Past directorships: North Texas Public Broadcasting (Finance Committee Chair) |
Skills and expertise: Distribution, technology, revenue management, travel and tourism, finance
Ms. Keszler is the President and Chief Executive Officer of Clear Sky Associates, and serves as a board member or an advisor to numerous travel technology related companies. She previously served as President of Travelocity Business from 2003 to 2007, and as Senior Vice President - North American Division of Sabre Travel Network from 2000 to 2004. From 1987 to 2000, Ms. Keszler held various finance roles at Sabre Holdings, American Airlines and JCPenney. These functions included financial planning, strategic analysis, treasury, mergers and acquisitions, and financial operations.
Ms. Keszler’s extensive experience in technology, travel distribution, revenue management, customer engagement, and finance brings to the Board a significant understanding of issues and risks that affect the Corporation.
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Jodie W. McLean
CEO and Director, EDENS
Independent Director
Other directorships: International Council of Shopping Centers (Trustee), Urban Land Institute, (Trustee), Wofford College
Skills and expertise: Real estate development; retail; consumer trends
Ms. McLean is the Chief Executive Officer and a member of the Board of Directors of EDENS, a private commercial real estate company that develops, owns, and operates retail community shopping centers in primary markets across the country. She joined EDENS in 1990 and has held various positions including Chief Investment Officer from 1997 to 2015 and also President from 2002 to 2015.
Ms. McLean’s extensive experience in consumer retail trends, customer engagement, real estate and investments brings to the Board a significant understanding of issues and risks that affect the Corporation.
Thomas F. O’Toole
Senior Fellow and Clinical Professor of Marketing,
Kellogg School of Management at Northwestern University
Independent Director
Other directorships: Alliant Energy Corporation, LSC Communications, LLC
Skills and expertise: Lodging business; travel industry; revenue strategy, marketing; distribution; customer data analytics; customer loyalty; branding; information systems
Mr. O’Toole has been Senior Fellow and Clinical Professor of Marketing in the Kellogg School of Management at Northwestern University since November 2016. He has been a Senior Advisor with McKinsey & Company since January 2017. He has been a Senior Advisor with McKinsey & Company since January 2017.
Mr. O’Toole served as Chief Marketing Officer and Senior Vice President of United Airlines from January 2015 to December 2016, and President of MileagePlus Holdings, LLC from April 2012 to December 2016, of United Continental Holdings, Inc., a global air carrier. Mr. O’Toole joined United Airlines in 2010, serving as Senior Vice President, Marketing and Loyalty from 2012 to 2015, Chief Operating Officer of Mileage Plus Holdings, LLC from 2010 to 2012 and Chief Marketing Officer in 2010. At United Airlines, he was responsible for brand development, marketing, ancillary revenue, ecommerce, digital channels, distribution, co-brand credit cards, customer data analytics and related functions, including United’s MileagePlus loyalty program. Prior to that, he served as an advisor with Diamond Management & Technology Consultants, a management and technology consulting firm, from 2009 to 2010. Mr. O’Toole served in various positions of increasing responsibility at Hyatt Hotels Corporation from 1995 to 2008, including as Chief Marketing Officer and Chief Information Officer from 2006 to 2008. At Hyatt, he was responsible for brand development, marketing, distribution, the Gold Passport loyalty program, information technology and related functions.
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Mr. O’Toole’s extensive travel industry, hospitality and marketing experience in C-level positions brings to the Board a broad and deep understanding of the commercial, operational and strategic imperatives of running a large scale corporation in the travel industry and hospitality category.
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Richard F. Wallman CFO, Honeywell International Inc. (Ret.) Independent Director Audit Committee Financial Expert
Other directorships: Roper Industries, Inc., Boart Longyear Limited (Audit Committee Chair), Wright Medical Group N.V. (Audit Committee), Charles River Laboratories International, Inc.
Past directorships: Convergys Corporation, Dana Holding Corporation (Audit Committee) |
Skills and expertise: Corporate finance and accounting; corporate governance; internal controls over financial reporting
Mr. Wallman has served as a director of the Corporation since July 2013 and as a director of ESH REIT from November 2013 to May 2016. He previously served as a non-voting member of the board of managers of Holdings and Strategies Holdings from May 2012 to November 2013. Mr. Wallman served as the Chief Financial Officer and Senior Vice President of Honeywell International Inc., a provider of diversified industrial technology and manufacturing products, and its predecessor AlliedSignal, from March 1995 until his retirement in July 2003.
Mr. Wallman’s extensive financial background brings to the Board a significant understanding of the financial issues and risks that affect the Corporation. Mr. Wallman also serves on the boards of other diverse publicly held companies, which gives him a multi-industry perspective and exposure to developments and issues that impact the management and operations of a large scale corporation.
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| proposal 1: election of directors |
CORPORATE GOVERNANCE AND BOARD MATTERS
We believe that good corporate governance helps to ensure that the Corporation is managed for the long-term benefit of our shareholders. We regularly review and consider our corporate governance policies and practices, the SEC’s corporate governance rules and regulations, and the corporate governance listing standards of the NYSE, the stock exchange on which our Paired Shares are traded.
The Board directs and oversees the management of the business and affairs of the Corporation in a manner consistent with the best interests of the Corporation and its shareholders. In this oversight role, the Board serves as the ultimate decision-making body of the Corporation, except for those matters reserved to or shared with the Corporation’s shareholders.
We have adopted the Extended Stay America, Inc. Corporate Governance Guidelines (as amended from time to time, the “Corporate Governance Guidelines”), which provide a framework for the governance of the Corporation as a whole and describe the principles and practices that the Board follows in carrying out its responsibilities. The Corporate Governance Guidelines address, among other things:
| ñ | the composition, structure and policies of the Board and its committees; |
| ñ | director qualification standards; |
| ñ | expectations and responsibilities of directors; |
| ñ | management succession planning; |
| ñ | the evaluation of Board performance; |
| ñ | our director resignation policy; and |
| ñ | principles of Board compensation. |
The Corporate Governance Guidelines further provide that the Board, acting through the Nominating and Corporate Governance Committee (as described below), conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively. In addition, the Corporate Governance Guidelines provide that each committee conduct a self-evaluation and compare its performance to the requirements of its charter.
The Corporate Governance Guidelines are posted on the investor relations section of our website at www. aboutstay.com. The Corporate Governance Guidelines are reviewed by the Nominating and Corporate Governance Committee at least annually to ensure that they effectively promote the best interests of both the Corporation and the Corporation’s shareholders and that they comply with all applicable laws, regulations and NYSE requirements.
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To further align the interests of our executive officers and our shareholders, the Board has adopted stock ownership guidelines under which certain members of our management team and independent directors, after an initial phase-in period, will generally be required to maintain vested equity holdings with a value at least equal to the following amounts:
|
Position
|
Minimum vested equity holding
| |
| President and Chief Executive Officer
|
5x annual base salary
| |
| Chief Financial Officer
|
4x annual base salary
| |
| General Counsel and Executive Vice Presidents
|
3x annual base salary
| |
| Senior Vice Presidents
|
1x annual base salary
| |
| Independent Directors | 3x annual cash compensation
| |
The Corporation’s Securities Trading Disclosure Policy prohibits all directors, officers and employees of the Corporation from effecting hedging or similar monetization transactions with respect to Paired Shares.
Code of Business Conduct and Ethics
We have adopted the Extended Stay America, Inc. Code of Business Conduct and Ethics (the “Code of Business Conduct and Ethics”) that applies to all of our directors, officers and employees, including our principal executive officer (our President and CEO), principal financial officer (our CFO), principal accounting officer (our CFO) and persons performing similar functions. A copy of the Code of Business Conduct and Ethics is posted on the investor relations section of our website at www.aboutstay.com. If we amend or waive provisions of the Code of Business Conduct and Ethics with respect to such officers, we intend to disclose the amendment or waiver on our website.
Board of Directors and Director Independence
Prior to December 2016, Centerbridge Partners L.P. (“Centerbridge”), Paulson & Co. Inc. (“Paulson”), The Blackstone Group L.P. (“Blackstone”), and their funds or affiliates (collectively the “Sponsors”) owned a majority of the outstanding Paired Shares. As a result, prior to December 2016, the Board had determined that we were a “controlled company” under the rules of the NYSE and, as a result, qualified for, and relied on, exemptions from certain corporate governance requirements of the NYSE. Following our 2017 Annual Meeting of Shareholders, the Compensation Committee and the Nominating and Corporate Governance Committee were reconstituted solely with independent directors and the Board has had a majority of independent directors.
The Board consists of seven directors, all of whom have been nominated for re-election at the Annual Meeting. Our Second Amended and Restated Bylaws provide that directors are elected at the annual meeting of shareholders and each director is elected to serve until his or her successor is duly elected or until his or her earlier death, resignation or removal.
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The Corporate Governance Guidelines define an “independent” director in accordance with the NYSE corporate governance rules for listed companies and require the Board to review and make an affirmative determination as to the independence of each director at least annually. The NYSE independence definition includes a series of objective tests, such as that the director is not an employee of the Corporation and has not engaged in various types of business dealings with the Corporation. Because it is not possible to anticipate or explicitly provide for all potential conflicts of interest that may affect independence, the Board is also responsible for determining affirmatively, as to each independent director, that no material relationships exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the Board broadly considers all relevant facts and circumstances, including information provided by the directors and the Corporation with regard to each director’s business and personal activities as they may relate to the Corporation and the Corporation’s management. Our Board has affirmatively determined that each of our directors other than Mr. Halkyard is independent under the guidelines for director independence set forth in the Corporate Governance Guidelines and under all applicable rules of the SEC and the NYSE.
We do not have a policy as to whether the role of the Board Chair and the Chief Executive Officer should be separate or combined. The Board may select its Chair and Chief Executive Officer in any way it considers to be in the best interests of the Corporation. At this time, we believe it is beneficial to separate the Chair and Chief Executive Officer in order to enhance the Chair’s oversight capability. Mr. Halkyard serves as our Chief Executive Officer and Mr. Geoga serves as Board Chair. The Board believes this leadership structure, which separates the Chair and Chief Executive Officer roles, is appropriate corporate governance for us at this time. In particular, the Board believes that this leadership structure clarifies the individual roles and responsibilities of Mr. Halkyard and Mr. Geoga and enhances accountability. The Board recognizes that there is no single, generally accepted approach to providing Board leadership and that the Board’s leadership structure may vary in the future as circumstances warrant. If the Board determines that it is in the best interests of our shareholders to combine the positions of Chair and Chief Executive Officer, the independent directors will designate a Lead Independent Director.
Board Oversight of Risk Management
The Board oversees, and provides direction with respect to, management’s day-to-day risk management activities and processes. While the full Board is responsible for risk oversight, the Board uses its committees, as appropriate, to monitor and address the risks that are within the scope of a particular committee’s expertise or charter. The Board and applicable committees periodically receive management reports on our business operations, financial results and strategic plans.
The Board delegates appropriate aspects of its oversight responsibility to the Audit Committee. The Audit
Committee assists the Board in fulfilling its risk oversight responsibilities by periodically reviewing, among other things, our financial statements, our auditing, accounting and financial functions and reporting processes, including our systems of internal controls for financial reporting, our compliance with legal and regulatory requirements, our enterprise risk management framework, and our cybersecurity risk. In particular, the Audit Committee periodically reviews and discusses with management, the internal audit
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function and the independent auditor, as applicable, our major financial risk exposure and the guidelines and policies that management has established with respect to risk assessment and risk management. The Compensation Committee assists the Board with oversight of risks associated with our compensation policies and practices. The Nominating and Corporate Governance Committee assists the Board with oversight of risks associated with our governance. In each case, the Board or the applicable committee oversees the steps that management has taken to monitor and control such exposures.
The Chief Executive Officer’s membership on and collaboration with the Board allows him to gauge whether management is providing adequate information for the Board to understand the interrelationships of our various business and financial risks. He is available to the Board to address any questions regarding executive management’s ability to identify and mitigate risks and weigh them against potential rewards.
The Nominating and Corporate Governance Committee is responsible for reviewing the qualifications of potential director nominees and recommending to the Board those candidates to be nominated for election to the Board or candidates to fill vacancies on the Board. The Board then nominates candidates each year for election or re-election by shareholders or appoints new Board members to fill vacancies. In identifying prospective director candidates, the Committee may seek referrals from other members of the Board, management and third-party sources. The Committee may, but is not required to, retain a search firm in order to assist it in identifying candidates to serve as directors of the Board. In December 2016, the Committee retained Ferguson Partners Ltd., who provided these services throughout 2017. The Committee screens all potential candidates in the same manner regardless of the source of the recommendation.
The Nominating and Corporate Governance Committee does not maintain a fixed set of qualifications for director nominees other than the minimum individual qualifications described below. In considering candidates for the Board, the Committee considers all factors it deems appropriate, which may include (a) ensuring that the Board, as a whole, is appropriately diverse and consists of individuals with various and relevant career experience, relevant technical skills, relevant business or government acumen, industry knowledge and experience, financial expertise (including expertise that could qualify a director as an “audit committee financial expert”), local or community ties and (b) minimum individual qualifications, including strength of character, mature judgment, familiarity with the Corporation’s business and industry, independence of thought and an ability to work collegially. The Committee also may consider the current size, composition and combined expertise of the Board and the extent to which a candidate would fill a present need on the Board. In particular, the Committee may consider the requirements that the members of the Board as a group maintain the requisite qualifications under the applicable NYSE listing standards for independence for the Board as a whole and for appointing individuals to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Although the Nominating and Corporate Governance Committee considers diversity of background and experiences, neither the Corporate Governance Guidelines nor the Nominating and Corporate Governance Committee Charter include a formal diversity policy.
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The Board monitors the mix of specific experience, qualifications and skills of its directors in order to assure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of the Corporation’s business and structure.
The Nominating and Corporate Governance Committee will consider candidates suggested by shareholders. Any shareholder who wishes to recommend a director candidate for consideration by the Nominating and Corporate Governance Committee may do so by submitting a recommendation in writing to the Chair of the Nominating and Corporate Governance Committee. See “Communications with the Board” below for how to communicate with the Chair of the Nominating and Corporate Governance Committee. Recommendations should include any information the shareholder believes would be helpful to the Committee in evaluating the candidate and must include information that would be required to be disclosed in a proxy statement soliciting proxies for the election of such candidate, including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as director if elected. If the Nominating and Corporate Governance Committee determines to nominate a shareholder-recommended candidate and recommends his or her election, then his or her name will be included on the proxy card for our next annual meeting in accordance with the procedures set forth in our Second Amended and Restated Bylaws. Shareholders may also directly nominate directors for election at the Corporation’s annual shareholders meeting by following the provisions set forth in the Corporation’s Second Amended and Restated Bylaws, whose qualifications the Nominating and Corporate Governance Committee will consider. See “Frequently Asked Questions—What is the deadline under our Second Amended and Restated Bylaws for shareholders to nominate persons for election to the Board or to propose other matters to be considered at our 2019 annual meeting of shareholders?” for additional information.
Proxy Access Director Nominations
In addition to advance notice procedures, our Second Amended and Restated Bylaws also include provisions permitting, subject to certain specified terms and conditions, shareholders who have maintained continuous qualifying ownership of at least 3% of outstanding common stock for at least three years to nominate a number of director candidates not to exceed the greater of two candidates or 20% of the number of directors then in office who will be included in our annual meeting proxy statement. Eligible shareholders who wish to nominate a proxy access candidate must follow the procedures described in our Second Amended and Restated Bylaws. Proxy access candidates and the shareholder nominators meeting the qualifications and requirements set forth in our Second Amended and Restated Bylaws will be included in the Corporation’s proxy statement and ballot. To be timely, an eligible shareholder’s proxy access notice must be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277, no earlier than 150 days and no later than 120 days before the one-year anniversary of the date that we commenced mailing of our definitive proxy statement (as stated in such proxy statement) for the immediately preceding annual meeting, except as otherwise provided in the Second Amended and Restated Bylaws.
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Meetings of the Board and Committees
During 2017, the Board held four regular meetings and three telephonic special meetings, in addition to taking various actions by unanimous written consent. During 2017, each incumbent director attended at least 75% of the total meetings of the Board held during the period in which he or she was a director and the total number of meetings held by all of the committees of the Board on which he or she served during the period of his or her service on the committee. Directors are expected to attend all Board meetings and all meetings of the committee or committees of the Board of which they are a member. Attendance by telephone or videoconference is deemed attendance at a meeting. Additionally, all director nominees are encouraged to attend the annual shareholders meeting. All of the directors who were then serving on the Board attended the 2017 annual shareholders meeting.
Pursuant to our Corporate Governance Guidelines, our Board currently plans to hold at least four meetings each year, with additional meetings to occur (or action to be taken by unanimous written consent) at the discretion of the Board.
Executive Sessions of Non-Management Directors
Pursuant to our Corporate Governance Guidelines, in order to ensure free and open discussion and communication among the non-management directors of the Board, the non-management directors meet in executive session at most Board meetings with no members of management present. Mr. Geoga serves as the Chair of executive sessions.
Any interested parties wishing to communicate with, or otherwise make his or her concerns known directly to the Board or Chair of any of the Audit, Compensation and Nominating and Corporate Governance Committees, or to the independent directors, may do so by addressing such communications or concerns to the General Counsel and Corporate Secretary of the Corporation, 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. The General Counsel and Corporate Secretary or Chair will forward such communications to the appropriate party as soon as practicable. Such communications may be done confidentially or anonymously.
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The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee is composed solely of independent directors. Each committee operates under its own written charter approved by the Board, copies of which are available on the investor relations section of our website at www.aboutstay.com.
The following table shows the current membership of each committee of our Board, and the number of meetings held by each committee during 2017:
| Director
|
Audit Committee
|
Compensation
|
Nominating and
| |||
| Douglas G. Geoga*
|
Member
|
Chair
|
||||
| Kapila K. Anand
|
Member
|
Chair
| ||||
| Ellen Keszler
|
Member
|
|||||
| Jodie W. McLean
|
Member
|
Member
| ||||
| Thomas F. O’Toole
|
Member
|
Member
| ||||
| Richard F. Wallman
|
Chair
|
Member
|
Member
| |||
| Number of 2017 Meetings†
|
7
|
4
|
4
| |||
* Mr. Geoga has served as the Board Chair since November 12, 2013.
† During 2017, each committee also took actions by unanimous written consent.
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The Audit Committee currently consists of Mr. Wallman, Mr. Geoga, Ms. Keszler, and Mr. O’Toole. Mr. Wallman is the Chair of the Audit Committee. The Board has determined that Mr. Wallman, Mr. Geoga, and Ms. Keszler each qualify as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. The Board has further determined that all four members of the Audit Committee are “independent” as defined in Rule 10A-3 of the Exchange Act and the NYSE listing standards.
The principal duties and responsibilities of the Audit Committee are set forth in its written charter, and include, among other things, to oversee and monitor:
| ñ | our financial reporting process and internal control system; |
| ñ | the integrity of our financial statements; |
| ñ | the independence, qualifications and performance of our independent auditor; |
| ñ | the performance of our internal audit function; and |
| ñ | our compliance with legal, ethical and regulatory matters. |
The Audit Committee also reviews and approves certain related party transactions, as described under “Certain Relationships and Related Party Transactions—Related Party Transaction Policy.” Additional information about the responsibilities of the Audit Committee and its activities during 2017 are also described in the Audit Committee Report contained in this Proxy Statement.
The Compensation Committee currently consists of Mr. Geoga, Ms. Anand, Ms. McLean, and Mr. Wallman. Mr. Geoga is the Chair of the Compensation Committee. The Board has determined that each Compensation Committee member is “independent” as defined by the NYSE listing standards.
The principal duties and responsibilities of the Compensation Committee are set forth in its written charter, and include, among other things:
| ñ | to establish the general compensation philosophy and policy consistent with our strategic goals and shareholder interests; |
| ñ | to review, make recommendations to the Board, or approve where applicable, the compensation of our executives, including our Chief Executive Officer, including an evaluation of the level of compensation, use of equity-based compensation, setting of performance goals and objectives used to determine incentive compensation, and an evaluation of the executive’s performance in light of those established goals and objectives; |
| ñ | to review and approve executive employment agreements, change in control agreements and other benefits paid to our executives and to administer our equity-based compensation, incentive and benefit plans for all plan participants; |
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| ñ | to periodically review and make recommendations to the Board, or approve where applicable, any substantive changes to the director and executive incentive, compensation and benefit plans of the Corporation; |
| ñ | to review and make recommendations to the Board with respect to compensation disclosures and any shareholder proposals regarding executive compensation; and |
| ñ | to provide regular reports to the Board and take such other actions as are necessary and consistent with governing law and the Corporation’s organizational documents. |
The Compensation Committee has the authority to and does engage the services of independent advisors, experts and others to assist it from time to time. In accordance with this authority, the Compensation Committee has engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent compensation consultant, as described under “Executive Compensation—Compensation Discussion and Analysis—Our Decision Making Process.”
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists of Ms. Anand, Ms. McLean, Mr. O’Toole, and Mr. Wallman. Ms. Anand is the Chair of the Nominating and Corporate Governance Committee. The Board has determined that each Nominating and Corporate Governance Committee member is “independent” as defined by the NYSE listing standards.
The principal duties and responsibilities of the Nominating and Corporate Governance Committee are set forth in its written charter, and include, among other things:
| ñ | to establish criteria for Board and committee membership and recommend to the Board proposed nominees for election to the Board and for membership on committees of the Board; |
| ñ | to make recommendations regarding proposals submitted by our shareholders; |
| ñ | to make recommendations to the Board regarding Board governance matters and practices; and |
| ñ | to provide oversight regarding management succession planning. |
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has at any time been one of our executive officers or employees. During 2017, none of our executive officers served as a member of the board of directors or compensation committee of an entity that has an executive officer serving as a member of the Compensation Committee, and none of our executive officers served as a member of the compensation committee of an entity that has an executive officer serving as a director on the Board.
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At the Board’s regular meeting in May 2017, in anticipation of the departure of the last Sponsor representatives from the Board, the Compensation Committee adopted an amended director compensation program that provides the following:
| ñ | Except as provided below, each independent director receives an annual cash retainer of $90,000 and an annual equity retainer with a value at grant of $100,000. Equity retainers are granted in restricted stock units that vest one year from the day of the grant. |
| ñ | The Chairs of the Board and of each Committee receive an additional cash retainer in the following amounts: |
| Chair
|
Additional cash retainer
|
|||
| Board
|
|
$ 25,000
|
| |
| Audit Committee
|
|
$ 15,000
|
| |
| Compensation Committee
|
|
$ 10,000
|
| |
| Nominating and Corporate Governance Committee
|
|
$ 7,500
|
| |
The Board Chair does not receive the additional cash retainer for serving as a Committee Chair. Mr. Geoga therefore does not receive an additional cash retainer for serving as the Chair of the Compensation Committee.
| ñ | Mr. Geoga and Ms. Anand also serve on the Board of Directors of ESH REIT. Although the Boards of Directors of the Corporation and of ESH REIT represent different interests, there is substantial overlap in the materials upon which the members of each Board of Directors rely in preparing for meetings and otherwise serving as directors. Recognizing that the incremental work required to serve on the second board is less than twice the effort of serving on a single board, Mr. Geoga and Ms. Anand each receive a total annual cash retainer of $120,000 and an annual equity retainer with a value at grant of $150,000 for their service on both Boards, the cost of which is split evenly between the Corporation and ESH REIT. The compensation paid to Mr. Geoga and Ms. Anand for serving as Committee Chairs is not affected. |
The Compensation Committee subsequently adopted an amendment to the director compensation program permitting each director to receive the value of his or her cash retainers in Paired Shares.
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The table below sets forth the portion of the compensation paid to the members of the Board that is attributable to services performed during the fiscal year ended December 31, 2017.
| Director |
Fees earned
|
Stock
|
All Other
|
Total
|
||||||||||||
| Douglas G. Geoga
|
$
|
66,250
|
|
$
|
74,648(3)
|
|
$
|
21,250
|
|
$
|
162,148
|
| ||||
| Kapila K. Anand
|
$
|
69,500
|
|
$
|
74,648(4)
|
|
$
|
–
|
|
$
|
144,148
|
| ||||
| Jodie W. McLean
|
$
|
22,500
|
|
$
|
85,782(5)
|
|
$
|
22,500
|
|
$
|
130,782
|
| ||||
| Thomas F. O’Toole
|
$
|
33,750
|
|
$
|
99,530(6)
|
|
$
|
22,500
|
|
$
|
155,780
|
| ||||
| Richard F. Wallman
|
$
|
69,375
|
|
$
|
99,530(7)
|
|
$
|
26,250
|
|
$
|
195,155
|
| ||||
| Gerardo I. Lopez(8)
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
| ||||
| (1) | The amounts included in the “Stock Awards” column represent the grant date fair value of the restricted stock units granted, computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 14—Equity-Based Compensation to the audited consolidated and combined financial statements of Extended Stay America, Inc. included in the combined annual report on Form 10-K for the fiscal year ended December 31, 2017 of the Corporation and ESH REIT. Vested restricted stock units will be settled in Paired Shares on September 15th following the applicable vesting date. |
| (2) | The amounts included in the “All Other Compensation” column represent the fair value of Paired Shares received in lieu of cash payment. |
| (3) | On May 17, 2017, Mr. Geoga was granted 4,251 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (4) | On May 17, 2017, Ms. Anand was granted 4,251 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (5) | On August 29, 2017, Ms. McLean was granted 4,657 restricted stock units, which are scheduled to vest on August 28, 2018. |
| (6) | On May 17, 2017, Mr. O’Toole was granted 5,668 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (7) | On May 17, 2017, Mr. Wallman was granted 5,668 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (8) | Mr. Lopez did not receive any compensation for services rendered during 2017 as a director of the Corporation. Mr. Lopez’s compensation for services rendered as President and Chief Executive Officer of the Company is reported in the Summary Compensation Table. |
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Proposal No. 2 An advisory vote on the Corporation’s executive compensation.
Recommendation The Board unanimously recommends that you vote “FOR” Proposal No. 2 to approve, on an advisory basis, the compensation paid to our NEOs as disclosed pursuant to the SEC’s compensation disclosure rules. |
Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Corporation to request shareholder approval, on an advisory basis, of the compensation paid to our named executive officers (“NEOs”) as disclosed pursuant to the SEC’s compensation disclosure rules.
This proposal is commonly known as a “say-on-pay” proposal.
As part of the Compensation Committee’s efforts to ensure that the interests of our NEOs are aligned with those of our shareholders, the Compensation Committee considers the results of the Corporation’s prior shareholder advisory votes on executive compensation. Our most recent say-on-pay vote was held in 2017 and yielded an approval by 62.02% of the votes cast. Although this constituted a majority of votes cast, the Committee considered the results to reflect substantial shareholder concern with the Corporation’s then-current executive compensation program. In response to the vote and comments from shareholders, the Committee has since taken three significant actions:
| ñ | First, in connection with the appointment of Mr. Halkyard as our new President and CEO effective January 1, 2018, the Committee adopted a compensation structure that did not involve above-market upfront grants of restricted stock units. Other than a modest one-time grant of restricted stock units, Mr. Halkyard’s compensation mirrors the structure used for our other NEO’s: a base salary, performance based bonus, and long-term incentives based on both time and performance measures. |
| ñ | Second, the Committee modified our long-term incentive plan to eliminate the Adjusted EBITDA-based performance measure that is used in our short-term annual bonus plan. Beginning in 2018, awards under the long-term plan now use equal amounts of time-based units and performance-based units based on relative total shareholder return. |
| ñ | Third, in order to get immediate feedback from shareholders on the Committee’s actions, we adopted annual say-on-pay voting instead of following the minimum three-year cycle required by the SEC, which is why say-on-pay is back on the ballot this year. |
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The Compensation Discussion and Analysis (“CD&A”) beginning on page 23 of this Proxy Statement sets forth detailed information about our executive compensation program. In reviewing the CD&A, we encourage you to consider the following:
| ñ | Much of the content of the CD&A is dictated by SEC rules, which focus the disclosures on the prior fiscal year. Because Mr. Halkyard was not appointed as President and CEO until January 1, 2018, the required disclosures do not highlight the modifications that we made to our CEO compensation this year in connection with Mr. Halkyard’s appointment. We have included that information where we believe it is useful for you to evaluate our current compensation practices. |
| ñ | A significant portion of the compensation granted to Mr. Lopez (our former President and CEO) was issued in the form of performance-based stock units when he was hired in August 2015. With his departure at the end of 2017, 500,000 of these units were cancelled, while the vesting of 33,334 time-based units was accelerated. We ask that you consider the difference between the potential compensation that he was granted at his hire date and the portion of that compensation that was actually realized. |
Our executive compensation program is designed to (i) attract, engage and retain a high quality workforce that helps achieve immediate and longer term success and (ii) motivate and inspire associate behavior that fosters a high performing culture and is focused on delivering business objectives. We believe that our executive compensation program, particularly as restructured with Mr. Halkyard’s appointment as President and CEO, accomplishes those ends while remaining strongly aligned with the long-term interests of our shareholders.
As an advisory vote, this proposal is not binding upon the Corporation. However, our Compensation Committee will continue to use shareholder feedback, both as expressed by your say-on-pay vote and as provided directly to us, as an important consideration in making future NEO compensation decisions.
The Board therefore recommends that shareholders vote in favor of the following resolution:
RESOLVED, that the shareholders of the Corporation approve, on an advisory basis, the executive compensation of the Corporation’s NEOs as disclosed within this Proxy Statement pursuant to the compensation disclosure rules of the Exchange Act (Item 402 of Regulation S-K), which disclosure includes the Compensation Discussion and Analysis, the compensation tables and any related narrative discussion contained in this Proxy Statement.
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The following table sets forth, as of April 5, 2018, the name and age of our executive officers and the positions and offices they currently hold:
| Name
|
Age
|
Position
| ||
| Jonathan S. Halkyard
|
53
|
President and Chief Executive Officer
| ||
| David Clarkson
|
46
|
Interim Chief Financial Officer
| ||
| Kevin A. Henry
|
50
|
Chief Human Resources Officer
| ||
| John R. Dent
|
54
|
General Counsel and Corporate Secretary
| ||
| M. Thomas Buoy
|
49
|
Executive Vice President, Revenue
| ||
| James G. Alderman Jr.
|
53
|
Chief Asset Merchant
| ||
| Ames B. Flynn
|
53
|
Executive Vice President, Shared Services
| ||
| Simon Mendy
|
41
|
Executive Vice President, Operations
| ||
| Howard J. Weissman
|
49
|
Corporate Controller and Chief Accounting Officer
| ||
Set forth below are descriptions of the backgrounds of each of our executive officers who are not directors, as of April 5, 2018:
David Clarkson has served as Interim Chief Financial Officer of the Corporation and ESH REIT since January 2018. Since May 2013, Mr. Clarkson has served as Treasurer of the Corporation as well as Vice President of Financial Planning & Analysis since September 2015. Prior to joining the Corporation in 2011, Mr. Clarkson was Vice President of Finance and Development for The Clarkson Group, a real estate company focused primarily on limited service hotel development. Between 1996 and 2004, Mr. Clarkson held various positions in finance and revenue management for the Corporation’s predecessor. Mr. Clarkson is a CFA charterholder.
Kevin A. Henry has served as Chief Human Resources Officer of the Corporation since August 2014. From December 2010 to August 2014, Mr. Henry served as Senior Vice President and Chief Human Resources Officer of Snyder’s-Lance, Inc., a national snack food company. From January 2010 to December 2010, he served as Chief Human Resources Officer of Lance, Inc. Prior to that, Mr. Henry served in a variety of positions at Coca-Cola Bottling Co. Consolidated, a beverage manufacturer and distributor, including as Chief Human Resources Officer from 2007 to 2010 and Senior Vice President of Human Resources from 2001 to 2007.
|
|
2018 PROXY STATEMENT | 21 |
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| proposal 2: say-on-pay |
John R. Dent has served as General Counsel and Corporate Secretary of the Corporation and ESH REIT since January 2015. From 2000 to 2014, Mr. Dent held various positions at Hilton Worldwide, Inc. (formerly Hilton Hotels Corporation), including Senior Vice President and Deputy General Counsel (from March 2012 to August 2014), Senior Vice President and Assistant General Counsel, Development (from 2009 to 2012), Acting General Counsel (from 2010 to 2011), Vice President and Senior Counsel (from 2001 to 2009), and Senior Counsel (from 2000 to 2001). From 1990 to 2000, Mr. Dent was in private practice.
M. Thomas Buoy has served as Executive Vice President, Revenue since October 2017. He previously served as Executive Vice President, Marketing and Revenue Management of the Corporation from October 2016. He served as Executive Vice President, Pricing and Revenue Optimization of the Corporation from November 2013 to October 2016 and served in the same position at HVM LLC from August 2011 to November 2013. From 1999 to August 2011, Mr. Buoy held various positions with Morgans Hotel Group Co. (formerly Ian Schrager Hotels). He served as Senior Vice President of Customer Market and Revenue Management (from 2007 to 2011), Senior Vice President of Distribution and Revenue Management (from 2005 to 2007), Vice President of Distribution and Revenue Management (from 2002 to 2005) and Corporate Director of Revenue Management (from 1999 to 2002). Prior to that, Mr. Buoy served as a Manager in Ernst & Young’s Hospitality Services Group from 1997 to 1999.
James G. Alderman Jr. has served as Chief Asset Merchant of the Corporation and ESH REIT since November 2016. He previously served as Chief Development Officer of Kimpton Hotels & Restaurants from July 2013 to November 2016. From March 2012 to July 2013, Mr. Alderman was principal of Alderman Hospitality, a hospitality real estate consulting firm. Prior to that, Mr. Alderman held various leadership positions with other lodging companies such as Wyndham Worldwide and Starwood Hotels & Resorts.
Ames B. Flynn has served as Executive Vice President, Shared Services of the Corporation since October 2017. Mr. Flynn previously served as Chief Information Officer of the Corporation from August 2013. Prior to joining the Corporation, Mr. Flynn held executive positions including Senior Vice President, Information Technology and Chief Investment Officer (from October 2012 to August 2013) at Rent-A-Center, Vice President, Digital Strategy and IT Business Solutions (from May 2011 to October 2012) at Michael’s Stores, Director, Retail Store Development (from 2009 to 2011) at Delhaize America, a food retailer, and Vice President, Sales/eCommerce (from 2006 to 2008) at Lowe’s Home Improvement. Mr. Flynn has served as a board member of the Dallas CIO Executive Council and is a past president of the Information Technology Committee, American Furniture Manufacturing Association.
Simon Mendy has served as Executive Vice President, Operations of the Corporation since November 2017. Mr. Mendy previously held various positions at the Corporation, including Senior Vice President of Operations, South Division from May 2013 to November 2017, Vice President of Training, Standards and Guest Relations from April 2012 to May 2013, Regional Director of Operations from August 2008 to April 2012 and Director of Revenue Management from June 2005 to August 2008.
| 22 | 2018 PROXY STATEMENT |
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Howard J. Weissman has served as Chief Accounting Officer of the Corporation and ESH REIT and Corporate Controller of ESH REIT since May 2015 and Corporate Controller of the Corporation since November 2013. He previously served as Corporate Controller at HVM LLC from December 2011 to November 2013. From May 2009 to December 2011, Mr. Weissman worked at Campus Crest Communities, Inc., serving as Senior Vice President and Corporate Controller. From July 2007 through May 2009, Mr. Weissman was Controller and Chief Accounting Officer of EOP Operating Limited Partnership, LP, the private company successor to Equity Office Properties Trust, a commercial office real estate company owned by The Blackstone Group. From May 2003 through May 2007, Mr. Weissman served in a variety of positions with CarrAmerica Realty Corporation, a commercial office real estate company, including as Assistant Controller, Vice President of Shared Services and Controller.
Compensation Discussion and Analysis (“CD&A”)
This CD&A explains our executive compensation program for our NEOs listed below. The CD&A also describes the process followed by the Compensation Committee for making pay decisions, as well as its rationale for specific decisions related to 2017 compensation.
|
2017 CD&A At-A-Glance
| ||||
|
This year’s CD&A again reviews the objectives and elements of the Company’s executive compensation program and discusses the 2017 compensation earned by our NEOs. It also explains the actions the Compensation Committee took based on its ongoing commitment to reflect shareholder feedback and to reward our senior leadership team for delivering the robust growth and returns that our shareholders expect. Since our last annual meeting, we:
| ||||
|
Continued our robust shareholder engagement, with a key focus on executive compensation matters
|
|
Contacted shareholders representing approximately 60% of our outstanding common stock | ||
|
Successfully executed on
the
|
|
Seamlessly transitioned Mr. Halkyard into the role of President and CEO effective January 1, 2018 | ||
|
Implemented
shareholder-friendly
|
|
Added double-trigger change-in-control vesting and clawback provisions to all 2018 equity grants
| ||
|
Improved the structure of
our
|
|
Beginning in 2018, eliminated performance measures that were duplicated in our incentive plans and increased the weighting of relative Total Shareholder Return (rTSR) in our long-term plan | ||
|
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2018 PROXY STATEMENT | 23 |
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2017 saw important achievements for the Company and our shareholders, with the Company returning over $220 million to our shareholders through dividends and share repurchases and improving overall financial performance. With these results, based on the terms of our annual incentive plan, the NEOs achieved an 87.9% annual incentive level payout. More information about these actions, our 2017 business achievements, and the resulting compensation actions taken by the Compensation Committee are summarized in the following narrative.
In 2017 our NEOs were:
|
Name
|
Title
| |
| Gerardo I. Lopez(1)
|
President and Chief Executive Officer
| |
| Jonathan S. Halkyard(2)
|
Chief Financial Officer
| |
| Kevin A. Henry
|
Chief Human Resources Officer
| |
| John R. Dent
|
General Counsel and Corporate Secretary
| |
| M. Thomas Buoy | Executive Vice President - Revenue
| |
| (1) | On December 18, 2017, the Board of Directors accepted the voluntary resignation of Mr. Lopez from his position as President and Chief Executive Officer of the Company, effective January 1, 2018. |
| (2) | On December 18, 2017, the Board of Directors appointed Jonathan S. Halkyard as President and Chief Executive Officer of the Company, effective January 1, 2018. |
2017 Say-On-Pay and Shareholder Outreach
As part of the Compensation Committee’s efforts to ensure that the interests of our NEOs are aligned with those of our shareholders, the Compensation Committee considers the results of the Corporation’s prior shareholder advisory votes on executive compensation. After last year’s say-on-pay vote, we reached out to shareholders to understand their concerns.
As noted previously, seeking feedback from our shareholders on a regular basis is a critical part of our approach to managing our executive compensation program. See “2017 Year in Review – Shareholder Outreach and Engagement Highlights.” This cadence of shareholder engagement is in addition to the input we receive through say-on-pay voting and targeted outreach efforts. In 2017, we specifically engaged in a robust process to solicit feedback to better understand our shareholders’ concerns regarding executive compensation. We were able to meet in person, by email (limited and at their request) or by phone with 20 institutional shareholders representing approximately 60% of our outstanding common stock, to discuss our executive compensation structure and their anticipated say-on-pay votes.
The Committee, with assistance from management and its independent compensation consultant, considered the shareholder feedback received during these conversations. While shareholders had varying perspectives, a few common themes emerged. The following chart summarizes what we heard and how we responded:
| 24 | 2018 PROXY STATEMENT |
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| proposal 2: say-on-pay |
|
What we heard
|
How we responded
| |||
| Concerns about the level of CEO pay, which included the value of new-hire equity awards that were granted to Mr. Lopez when he joined the Company in 2015. |
|
The majority of Mr. Lopez’s new-hire equity awards were performance-based and, consistent with the plan’s design, unvested portions were forfeited upon his resignation. The Committee did not approve any additional equity grants to Mr. Lopez in 2017. We targeted the compensation of our new CEO, Mr. Halkyard, near the median of our peer group (see page 27) and used the same structure for his compensation package as for other senior executives.
| ||
| Duplication of performance metrics in the annual and long term incentive plans— both plans use Adjusted EBITDA. |
|
We will continue to use Adjusted EBITDA in the annual incentive plan, to maintain a focus on operating performance. To recognize that asset allocation has a significant impact on shareholder return in capital-intensive real estate businesses such as ours, however, the Committee decided to base our long-term incentive plan entirely on rTSR, beginning with the grants of performance-based restricted stock units made in 2018.
| ||
| Provide more thorough |
|
With this Proxy Statement, we have added a more detailed description of our shareholder interactions and how we incorporated your feedback in the development and adoption of our new executive compensation program.
| ||
| Concern over single-trigger vesting and the lack of a |
|
All grants beginning in 2018 are subject to double-trigger vesting upon a change in control. In addition, the Company implemented a new clawback policy applicable to all NEOs.
| ||
CEO Transition and Compensation
On January 1, 2018, we transitioned our CEO position from Mr. Lopez to Mr. Halkyard. Due to a combination of Mr. Lopez’s resignation and the incentive-driven structure of his compensation package, Mr. Lopez’s realized compensation was significantly less than the amount reported in the Summary Compensation Table in the year of the grant.
When Mr. Lopez was hired in August 2015 with the approval of our then-controlling Sponsors, his compensation package was designed both to compensate him for equity being forfeited from his then-current employer, as well as to provide substantial upside in the form of aggressive performance metrics that would have value only in the event of a substantial appreciation in the price of our Paired Shares. As a result, the significant majority of his total direct compensation (base salary, annual and long-term incentives) was at risk in the form of performance-based restricted stock units, tied to both absolute and relative financial performance measures. Much of Mr. Lopez’s long-term incentive grants were made, or committed to be made in early 2016, at that time. Mr. Lopez received no long-term incentive grants in 2017.
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Based on the Company’s performance over his tenure, and consistent with the design of the awards, the equity awards held by Mr. Lopez had substantially less value at the time of his voluntary resignation than had been reported under applicable accounting and disclosure requirements in our prior Proxy Statements. The chart below illustrates Mr. Lopez’s total potential pay (as reflected in the Salary, Bonus, Stock Awards, and Non-Equity Incentive Plan Compensation columns of in the Summary Compensation Table) over his three-year tenure, including annual incentives and equity grants at target, versus his actual realized pay:
Mr. Lopez received equity award grants in 2015 and 2016. These grants were primarily performance based (85% in 2015; 70% in 2016), vesting only if pre-determined absolute (for the 2015 award) or relative (for the 2016 award) TSR and Adjusted EBITDA performance goals were achieved. Based on actual performance, none of the performance-based awards granted in 2015 were earned, and only a portion of the performance-based awards granted in 2016 were earned. The remaining portion of the equity awards were time-based and, other than the acceleration of one grant that would otherwise have vested in August 2018, vested in accordance with the plan’s provisions before Mr. Lopez left the Company. Mr. Lopez did not receive any equity grants in 2017.
| 26 | 2018 PROXY STATEMENT |
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Mr. Halkyard was appointed as our new President and CEO effective January 1, 2018. Mr. Halkyard’s target direct compensation was set by reference to our peer group, which we describe on page 30. Mr. Halkyard’s annual base salary for 2018 is $900,000, his target annual bonus opportunity is 100% of his annual base salary, and the value of equity awarded is $3,200,000. Mr. Halkyard’s target direct compensation, as compared to the target direct compensation for CEOs of our peer companies, is as follows (amounts shown in thousands):
*Peer Group totals represent statistics which are not additive
Compensation Practices & Policies
We believe our compensation practices and policies promote sound compensation governance and are in the best interests of our shareholders and executives:
|
We do have:
|
We don’t have:
| |||||
|
Heavy emphasis on variable compensation |
|
Significant perquisites
| |||
|
Performance-weighted long-term incentive awards |
|
“Single-trigger” payments upon a change in control
| |||
|
|
Rigorous stock ownership guidelines |
|
Hedging of Corporation stock
| |||
|
|
Clawback provisions |
|
Pledging of Corporation stock
| |||
|
|
Independent compensation consultant |
|
Multi-year guarantees for salary increases
| |||
|
|
Regular risk assessments |
|
Tax gross-ups on parachute payments following a change
| |||
|
|
“Double-trigger” termination payments upon a change in control |
|
Repricing or backdating stock options without shareholder approval
| |||
|
|
Annual reviews of share utilization |
|
Executive agreements
| |||
|
|
2018 PROXY STATEMENT | 27 |
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| proposal 2: say-on-pay |
Executive Compensation Program Guidelines
The philosophy underlying our executive compensation program is to employ the best leaders in our industry to ensure we execute on our business goals, promote both short-and long-term profitable growth of the Corporation, and create long-term shareholder value. To this end, our program is grounded by the following guiding principles:
| Pay for Performance |
A significant portion of an NEO’s total compensation should be variable and dependent upon the attainment of certain specific and measurable annual and long-term business performance objectives.
| |
| Shareholder Alignment |
NEOs should be compensated through pay elements (base salaries, annual- and long-term equity incentives) designed to create long-term value for our shareholders, as well as foster a culture of ownership.
| |
|
Attraction and Retention |
The executive compensation program should enable the Corporation to attract highly-talented people with exceptional leadership capabilities and retain high-caliber talent.
|
Our compensation philosophy is supported by the following principal compensation elements:
| Base salary |
Base salary provides a predictable level of current income to provide the NEO with a certain amount of stability and assists the Corporation in attracting and retaining qualified executives.
| |
|
Performance-based
|
The annual incentive program is designed to reward the NEOs for achieving critical, short-term financial performance goals, as well as achieving individual objectives. | |
| Long-term equity-based awards |
Grants of restricted stock units under the Amended and Restated Extended Stay America Long-Term Incentive Plan (the “Equity Incentive Plan”) provide incentives for NEOs to execute on longer-term financial/strategic goals that drive shareholder value creation and support the Corporation’s retention strategy.
| |
| Participation in general employee benefit programs |
A standard package of employee benefits is maintained by the Corporation’s subsidiary, ESA Management LLC (together with its subsidiaries, “ESA Management”) to provide employees, including the NEOs, with retirement savings opportunities, medical coverage and other reasonable welfare benefits.
|
| 28 | 2018 PROXY STATEMENT |
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The Role of the Compensation Committee
The Compensation Committee oversees the executive compensation program for our NEOs. The Committee consists entirely of independent non-employee members of the Board. The Committee works closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Committee’s authority and responsibilities are specified in the Committee’s charter, which may be accessed at the investor relations section of our website at www.aboutstay.com.
The Committee makes all final compensation and equity award decisions regarding our NEOs. The Committee, together with management, also reviews our compensation practices and policies with regard to risk management and has determined that there are no policies or practices that are likely to lead to excessive risk-taking or have a material adverse effect on the Company.
While only Committee members make decisions regarding executive compensation, at the request of the Committee, members of our senior management team typically attend meetings during which executive compensation, company and individual performance, and competitive compensation levels and practices are discussed and evaluated. The Committee also receives recommendations from the CEO regarding the compensation of our other executive officers, including the other NEOs. The CEO does not participate in the deliberations of the Committee regarding his own compensation.
The Role of the Independent Consultant
Pursuant to authority granted to it under its charter, the Committee engages Pearl Meyer as its independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pearl Meyer reports directly to the Committee and does not provide any additional services to management. The Committee has conducted an independence assessment of Pearl Meyer in accordance with SEC rules and has determined that work performed by Pearl Meyer does not create a conflict of interest.
As part of our compensation philosophy, our executive compensation program is designed to attract, motivate and retain our NEOs in an increasingly competitive and complex talent market. As such, the Committee evaluates industry-specific and general market compensation practices and trends to ensure that our program remains appropriately competitive.
For all of the NEOs, cash compensation amounts have been set to provide a certain degree of financial security at levels that are believed to be competitive for similar positions in the marketplace in which we compete for management talent. In addition, the annual incentive program has been designed to meaningfully reward strong annual Company performance, in order to motivate participants to strive for the Company’s continued growth and profitability. In 2017, the compensation program continued to evolve to support the Corporation’s and ESH REIT’s long-range business goals and growth strategies.
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2018 PROXY STATEMENT | 29 |
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The Committee periodically considers publicly-available data for informational purposes when making its compensation-related decisions. However, market data is not the sole determinant of the Corporation’s practices or executive compensation levels. When determining base salaries and incentive opportunities for the NEOs, the Committee also considers the performance of the Corporation and the individual, the nature of an individual’s role within the Corporation, as well as experience and contributions in his or her current role.
For purposes of setting compensation for 2017, the Committee, based on recommendations from Pearl Meyer, approved the following Compensation Peer Group, which includes the following 15 industry peer companies and eight REIT peer companies:
|
Industry Peer Companies
|
REIT Peer Companies
| |
| Boyd Gaming Corporation
|
Ashford Hospitality Trust, Inc.
| |
| Brinker International, Inc.
|
DiamondRock Hospitality Company
| |
| Cedar Fair, L.P.
|
FelCor Lodging Trust Incorporated
| |
| Chipotle Mexican Grill, Inc.
|
Host Hotels & Resorts, Inc.
| |
| Choice Hotels International, Inc.
|
LaSalle Hotel Properties
| |
| Dave & Buster’s Entertainment, Inc.
|
RLJ Lodging Trust
| |
| DineEquity, Inc.
|
Ryman Hospitality Properties, Inc.
| |
| Dunkin’ Brands Group, Inc.
|
Sunstone Hotel Investors, Inc.
| |
| GNC Holdings, Inc.
|
||
| Hyatt Hotels Corporation
|
||
| La Quinta Holdings Inc.
|
||
| Panera Bread Company
|
||
| Six Flags Entertainment Corporation
|
||
| The Wendy’s Company
|
||
| Vail Resorts, Inc.
|
||
2017 Executive Compensation Program in Detail
Base salary is considered together with the annual cash incentive opportunity as part of a cash compensation package. Generally, the Corporation believes that the base salary level should be aligned with the NEO’s position, duties and experience, be reasonable relative to the other NEOs’ base salaries and be set at a level that is competitive as compared to salaries for similar positions within companies or markets from which we recruit talent.
The Compensation Committee reviews the compensation of each of the NEOs in May of each year, including base salary, and makes recommendations to the Board with respect to changes based on performance and a review of market compensation.
| 30 | 2018 PROXY STATEMENT |
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| NEO |
Salary Through |
Salary Adjustment % |
Salary Adjustment $ |
Salary Effective June 2017 |
||||||||||||
| Gerardo I. Lopez
|
$
|
1,030,000
|
|
|
0%
|
|
|
$ 0
|
|
|
$ 1,030,000
|
| ||||
| Jonathan S. Halkyard
|
$
|
583,495
|
|
|
3%
|
|
|
$ 16,505
|
|
|
$ 600,000
|
| ||||
| Kevin A. Henry
|
$
|
432,600
|
|
|
3%
|
|
|
$ 13,000
|
|
|
$ 445,600
|
| ||||
| John R. Dent
|
$
|
360,500
|
|
|
18%
|
|
|
$ 64,500
|
|
|
$ 425,000
|
| ||||
| M. Thomas Buoy
|
$
|
407,643
|
|
|
3%
|
|
|
$ 12,357
|
|
|
$ 420,000
|
| ||||
Mr. Lopez did not receive a salary increase in 2017. Mr. Halkyard and Mr. Henry received 3% increases consistent with companywide increases. Mr. Dent received an 18% increase in order to move him closer to the market median.
Mr. Buoy received a 3% salary increase consistent with companywide increases, and received a raise to $432,500 on October 1 when he took on additional responsibility related to the sales function and was promoted to Executive Vice President, Revenue.
The 2017 Annual Incentive Program provided our NEOs the opportunity to earn a performance-based annual cash bonus. Actual award payouts depend on the achievement of pre-established performance objectives and can range from 0% to 200% of target award amounts. For 2017, each of our NEOs was eligible to earn a target annual award equal to 100% of annual base salary. The Committee also considered market data in setting the following threshold, target and maximum award opportunities for 2017:
|
Annual Incentive Opportunity
|
||||||||||||||||
| NEO | Base Salary |
Threshold (50% of Base Salary) |
Target (100% of Base Salary) |
Maximum (200% of Base Salary) |
||||||||||||
| Gerardo I. Lopez
|
|
$ 1,030,000
|
|
|
$ 515,000
|
|
|
$ 1,030,000
|
|
|
$ 2,060,000
|
| ||||
| Jonathan S. Halkyard
|
|
$ 600,000
|
|
|
$ 300,000
|
|
|
$ 600,000
|
|
|
$ 1,200,000
|
| ||||
| Kevin A. Henry
|
|
$ 445,600
|
|
|
$ 222,800
|
|
|
$ 445,600
|
|
|
$ 891,200
|
| ||||
| John R. Dent
|
|
$ 425,000
|
|
|
$ 212,250
|
|
|
$ 425,000
|
|
|
$ 850,000
|
| ||||
| M. Thomas Buoy* |
|
$ 423,150*
|
|
|
$ 211,575
|
|
|
$ 423,150
|
|
|
$ 846,300
|
| ||||
*Mr. Buoy’s base salary for bonus purposes is prorated to reflect his salary increase on October 1, 2017.
|
|
2018 PROXY STATEMENT | 31 |
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| proposal 2: say-on-pay |
For 2017, annual incentive awards were based on achievement of Adjusted EBITDA goals (weighted at 100%). Adjusted EBITDA provides a useful illustration of our financial performance and the ongoing operations of our business, since the adjustments exclude certain expenses that are not indicative of our recurring core operating results. Consistent with the Committee’s philosophy to set target payout levels such that the relative difficulty of achieving the goal is anticipated to be consistent from year to year, for 2017, the target Adjusted EBITDA performance level represented a 3.3% increase over 2016 performance levels. Further, the target Adjusted EBITDA performance level reflects (when set) the expectations of the general economic and industry factors for the coming year and the results of management’s initiatives to improve the performance of the Company.
The following table summarizes the threshold, target and maximum Adjusted EBITDA goals, as well as actual results for fiscal 2017. Straight-line interpolation is applied for performance above threshold. For purposes of the annual incentive awards, “EBITDA” refers to Adjusted EBITDA of the Company, as defined in our combined annual report on Form 10-K for the year ended December 31, 2017.
|
Performance Measure |
Threshold | Target | Maximum | Actual | ||||||||||||
|
Adjusted EBITDA (in millions) |
|
$ 599
|
|
|
$630
|
|
|
$659
|
|
|
$623
|
| ||||
Target EBITDA was originally set in February 2017 at $636 million, representing a 3.3% increase over 2016 actual achievement. The target performance level was subsequently adjusted to $630 million during the year to reflect the sale of hotel properties and other adjustments that were not contemplated in setting the original target. The threshold and maximum performance levels were adjusted accordingly.
Based on the above results, for 2017, the Compensation Committee determined that the Corporation’s EBITDA target was achieved at the 87.9% level. Mr. Lopez, Mr. Halkyard, Mr. Henry, Mr. Dent and Mr. Buoy earned bonuses of $905,370, $527,400, $391,682, $373,575 and $371,949, respectively. The 2017 bonuses were paid in March 2018.
Our NEOs are eligible for long-term equity incentives, all of which are issued under the terms of our Equity Incentive Plan, which is designed to provide incentives for NEOs to execute on longer-term financial/ strategic goals that drive shareholder value creation and support the Corporation’s retention strategy. To this end, our approach to long-term incentive compensation includes a combination of performance-based and time-vested equity awards. The following table summarizes grants made in 2017.
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| Type of Equity Award | Weighting |
Description | ||
| Performance-Based Restricted Stock Units |
70% | ñ One half of the performance award (35%) vests based on the achievement of Adjusted EBITDA goals. Awards vest one third each year over a three-year performance period. | ||
|
ñ One half of the performance award (35%) vests based on rTSR against a group of peer companies over a three-year performance period.
| ||||
|
Time-Based Restricted Stock Units
|
30%
|
ñ Awards vest one third per year over three years.
| ||
The table below shows the long-term incentive award values granted for fiscal 2017 for each of the NEOs (as presented in the Grants of Plan-Based Awards Table):
| NEO | Performance-Based
Restricted Stock (70%) |
Time-Based |
Total Value | |||||||||||||
|
Adjusted EBITDA |
rTSR (35%) |
|||||||||||||||
| Gerardo I. Lopez*
|
– | – | – | – | ||||||||||||
| Jonathan S. Halkyard
|
$ | 210,377 | $ | 224,000 | $ | 180,311 | $ | 614,688 | ||||||||
| Kevin Henry
|
$ | 155,968 | $ | 166,068 | $ | 133,684 | $ | 455,720 | ||||||||
| John R. Dent
|
$ | 129,985 | $ | 138,384 | $ | 111,401 | $ | 379,770 | ||||||||
| M. Thomas Buoy
|
$
|
146,981
|
|
$
|
156,481
|
|
$
|
196,212
|
|
$
|
499,674
|
| ||||
* Mr. Lopez did not receive any equity grants in 2017 pursuant to his 2015 letter agreement.
Adjusted EBITDA performance based grants
With respect to the performance-based RSUs subject to Adjusted EBITDA performance goals (“EBITDA RSUs”) (which constitute 35% of the total number of the restricted stock units granted), one-third are scheduled to vest each year over a three-year period subject to annual Adjusted EBITDA goals. Following the 2017 performance period, (i) all three tranches of the EBITDA RSUs granted in 2015 have vested, in the aggregate, as to 86.5%; (ii) one tranche of the EBITDA RSUs granted in 2016 remains subject to vesting over the 2018 performance period; and (iii) two tranches of the EBITDA RSUs granted in 2017 remain subject to vesting over the 2018 and 2019 performance periods.
|
|
2018 PROXY STATEMENT | 33 |
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| proposal 2: say-on-pay |
After giving effect to the adjustment for the sale of hotel properties during the year as described above, the Committee established the following threshold, target and maximum performance levels for Adjusted EBITDA RSUs eligible to vest during the 2017 annual performance period: threshold, $599 million; target, $630 million, and maximum, $659 million. The Committee determined that based on Adjusted EBITDA results of $623 million for the 2017 performance period, 87.9% of the target was earned. The table below indicates the number of Paired Shares issued in 2017 in settlement of Adjusted EBITDA RSUs granted in 2015, 2016 and 2017 (in each case, relating to the one-third of the grant that was eligible to vest over the 2017 annual performance period) based on achievement of 87.9% of target.
|
Vested Over the 2017 Annual Performance Period
| ||||||
| NEO |
2015 Adjusted EBITDA RSUs |
2016 Adjusted EBITDA RSUs |
2017 Adjusted EBITDA RSUs | |||
| Gerardo I. Lopez *
|
–
|
92,295
|
–
| |||
| Jonathan S. Halkyard
|
2,440
|
4,689
|
3,534
| |||
| Kevin A. Henry
|
1,773
|
3,477
|
2,620
| |||
| John R. Dent
|
1,330
|
2,898
|
2,184
| |||
| M. Thomas Buoy
|
1,019
|
1,956
|
2,469
| |||
* Mr. Lopez did not receive grants in 2015 or 2017.
Relative Total Shareholder Return Grants
rTSR: 2017-2019 Performance Cycle. The performance-based restricted stock units subject to rTSR targets (“rTSR RSUs”) are eligible to vest at the end of a three-year performance period based on the rTSR of the Company as compared to the results of a specific peer group (see list below) during the three-year performance period. Payouts can range from 0% to 150% based on the Company’s TSR achievement versus that of the peer group. If the Company’s TSR is negative, the maximum payout is limited to 100%.
| Performance Level | Performance Ranking |
Paired Shares Earned as a Percentage of Target | ||
| < Threshold
|
< 35th %tile
|
0%
| ||
| Threshold
|
35th %tile
|
50%
| ||
| Target
|
Median
|
100%
| ||
| Maximum
|
75th %tile
|
150%
| ||
* Straight-line interpolation is applied for performance between threshold and target, and target and maximum, subject to a maximum payout of 100% if the Company’s TSR is negative.
| 34 | 2018 PROXY STATEMENT |
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| proposal 2: say-on-pay |
With respect to the rTSR RSUs granted in 2017, the specific comparator group consisted of the following 19 companies: Ashford Hospitality Trust, Ashford Hospitality Prime, Chatham Lodging Trust, Chesapeake Lodging Trust, Choice Hotels International, Diamondrock Hospitality, FelCor Lodging Trust, Hersha Hospitality Trust, Hilton Worldwide Holdings, Hospitality Properties Trust, Host Hotels and Resorts, Hyatt Hotels, La Quinta Holding, LaSalle Hotel Properties, Marriott International, RLJ Lodging Trust, Summit Hotel Properties, Sunstone Hotel Investors, and Wyndham Worldwide.
Mr. Buoy received a grant of 4,000 time vesting RSUs in recognition of taking on additional responsibilities. The grant date value of the RSUs was $70,240. The RSUs fully vest one year from the date of the grant.
As described above, beginning in February 2018, 100% of the performance-based portion of long-term incentive compensation vests based on achievement of rTSR.
Other Practices, Policies and Guidelines
Because we believe holding equity interests in the Corporation will discourage executives and members of our Board from taking excessive business risks, we maintain stock ownership guidelines to encourage our key executives to own stock at least equal in value to a multiple of base salary as follows: Mr. Halkyard, five times; the Chief Financial Officer, four times; and each of Mr. Henry, Mr. Dent and Mr. Buoy, three times. Shares that count towards satisfaction of these stock ownership guidelines generally include shares owned by the participant and vested restricted stock units. Our NEOs generally have a five-year period to meet the holding requirements from the date they first become subject to the guideline. The end of the five-year period for achieving the holding requirement has not occurred for any of the executives.
We prohibit the NEOs and other executives from engaging in transactions designed to insulate them from changes in the Company’s stock price. Therefore, the Corporation has an Anti-Hedging Policy that prohibits our NEOs from entering into transactions that include (without limitation) equity swaps or short sales of our securities, margin accounts or pledges of our securities, and hedges or monetization transactions involving our securities that are designed to hedge or offset any decrease in the market value of securities. In addition, the purchase or sale of puts, calls, options, or other derivative securities based on the Corporation’s securities is prohibited under this policy, and borrowing against any account in which our securities are held is prohibited.
Effective January 1, 2018 we implemented a clawback policy that covers all NEOs. The policy provides that in the event of a financial restatement, the Board has the discretion to require NEOs to return compensation that had been previously paid but was beyond what would have been earned under the results reflected in the restated financial statements.
|
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2018 PROXY STATEMENT | 35 |
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| proposal 2: say-on-pay |
The Corporation offers executive officers, including the NEOs, participation in health and welfare benefit programs in the same manner as other employees, including participation in ESA Management’s 401(k) Plan. Pursuant to the 401(k) Plan, executive officers are eligible to receive employer matching contributions, which vest over an employee’s initial three-year service period. Each of the NEOs participates in the 401(k) Plan.
Effective June 9, 2016, ESA Management sponsors the ESA Management, LLC Deferred Compensation Plan, in which each of our NEOs may participate. For a summary of the participation by our NEOs in this plan, see “Deferred Compensation Plan.”
We provide limited perquisites to our NEOs when determined to be necessary and appropriate, including payment of certain relocation expenses for executives who were not located in Charlotte, North Carolina when they joined the Company. During 2017, we reimbursed Mr. Lopez and Mr. Dent for reasonable transportation expenses incurred in connection with commuting to Charlotte, North Carolina. Pursuant to the terms of his letter agreement, Mr. Lopez was entitled to a housing allowance of $3,000 per month and a related gross-up for such amount for so long as he continued to commute to Charlotte, North Carolina. Pursuant to the terms of his letter agreement, Mr. Dent is entitled to a housing allowance of $2,000 per month and a related gross-up for such amount for so long as he continues to commute to Charlotte, North Carolina.
Each of the NEOs is entitled to severance benefits as a participant under the Severance Plan. In addition, each of the NEOs is entitled to benefits upon a change in control pursuant to their equity award agreements as described under “Potential Payments Upon Termination or Change in Control.”
Certain of our NEOs provide services to ESH REIT pursuant to the terms of a services agreement between the Corporation, ESA Management, and ESH REIT (the “Services Agreement”). Pursuant to the Services Agreement, certain employees of ESA Management, including its executive officers, may provide services to ESH REIT, subject to ESH REIT’s reimbursement, at cost, for the amount of any direct or indirect expenses incurred by ESA Management in connection with the provision of the services of such personnel.
| 36 | 2018 PROXY STATEMENT |
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| proposal 2: say-on-pay |
The Services Agreement provides that ESH REIT, the Corporation and ESA Management agree to allocate fairly and reasonably between them any overhead costs and expenses, including, without limitation, facility costs, which include costs for rental of space, legal and accounting expenses, telephone and fax costs, travel expenses, costs of technical and communication support, and shared administration and other similar office expenses. With respect to the compensation of our NEOs who provide services to ESH REIT, ESH REIT reimburses ESA Management a pro rata portion of the personnel costs attributable to the NEOs. Personnel costs include all compensation costs incurred by ESA Management or the Corporation in connection with the employment by ESA Management of our NEOs, including, without limitation, salary, incentive compensation, any profit sharing, 401(k), and deferred compensation plans, and medical and other insurance, fringe benefits, and severance costs, employment taxes and other similar employment expenses, and all costs relating to awards under the Equity Incentive Plan. The allocation is expressed as a percentage of the NEO’s total working time, calculated based on the time dedicated by each of our NEOs to ESH REIT. The allocations are mutually determined by ESH REIT, the Corporation and ESA Management on a commercially reasonable basis and may be determined on a calendar year, calendar quarter or other period basis.
For the 2017 fiscal year, ESH REIT, the Corporation and ESA Management determined that the amounts owed by ESH REIT to ESA Management in respect of services provided by our NEOs to ESH REIT were as follows: (i) Mr. Lopez, $0.5 million, (ii) Mr. Halkyard, $0.4 million; and (iii) Mr. Dent, $0.2 million. ESH REIT did not reimburse ESA Management for any expenses incurred for Mr. Henry or Mr. Buoy. Amounts reported in the Summary Compensation Table include the amounts paid to each NEO by ESA Management and the Corporation in respect of 2017, and include the amounts reimbursed by ESH REIT.
Mr. Lopez – As discussed above, Mr. Halkyard succeeded Mr. Lopez as our CEO effective January 1, 2018. Mr. Lopez continued employment as a Senior Advisor reporting to Mr. Halkyard through March 18, 2018 at an annualized base salary of $543,465. Mr. Lopez was paid his annual cash incentive award in respect of 2017 in March 2018, and his equity awards remained eligible to vest through March 18, 2018. Mr. Lopez is not eligible for any 2018 incentive grants (annual or long-term). In addition, 33,333 time vesting shares that would not have vested until August 18, 2018 were accelerated and vested on March 12, 2018. Since Mr. Lopez voluntarily resigned, he was not eligible for severance benefits.
Mr. Halkyard – Key components of Mr. Halkyard’s compensation effective upon his assuming the CEO role on January 1, 2018 are:
| ñ | Annual salary of $900,000 |
| ñ | Annual incentive target opportunity of 100% of salary |
| ñ | Equity grant value for 2018 of $3,200,000 of which 50% is time vesting over three years and 50% is performance vesting based on rTSR. These grants were made in March of 2018. |
|
|
2018 PROXY STATEMENT | 37 |
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| proposal 2: say-on-pay |
Impact of Tax Consideration on Compensation
Prior to January 1, 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) limited the Corporation’s deduction for compensation paid to the NEOs (with the exception of the chief financial officer) named in the Summary Compensation Table to $1 million during the tax year, subject to certain permitted exceptions. The Equity Incentive Plan was structured so that awards of stock options, stock appreciation rights and certain performance awards would be granted in a manner that satisfied the exception under Section 162(m) of the Code for qualified “performance-based compensation,” and similarly, the Extended Stay America, Inc. Annual Incentive Plan was structured so that annual performance-based incentive awards made thereunder would also satisfy the exception under Section 162(m). However, although the Compensation Committee considered the impact of Section 162(m) of the Code in making its past compensation decisions, it believed the tax deduction was only one of several relevant considerations in setting compensation. Accordingly, if it deemed it appropriate to provide compensation that did not constitute qualified performance-based compensation, the Compensation Committee would do so and, in such event, certain portions of compensation paid to the NEOs may not have been deductible for federal income tax purposes by reason of Section 162(m) of the Code.
As a result of the Tax Cuts & Jobs Act passed at the end of 2017, the exception for performance-based compensation under Section 162(m) has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers (which now includes all four active NEOs, including our CFO) in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Because of uncertainties as to the application and interpretation of Section 162(m) and its related regulations going forward, no assurance can be given that compensation paid to our executives that is intended to be tax deductible, in fact will be tax deductible. In response to this change, the Compensation Committee is carefully considering the structure of the Company’s executive compensation plans, but does not anticipate any material changes at this time.
Report of the Compensation Committee of the Board
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Douglas G. Geoga, Chair
Kapila K. Anand
Jodie McLean
Richard F. Wallman
| 38 | 2018 PROXY STATEMENT |
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| proposal 2: say-on-pay |
The following table sets forth the portion of compensation paid to the NEOs that is attributable to services performed during the fiscal years ended December 31, 2017, December 31, 2016 and December 31, 2015.
|
Name and Principal Position |
Year | Salary | Bonus | Stock Awards(1) |
Non-Equity Incentive Plan Compensation |
All Other Compensation |
Total | |||||||||||||||||||||
| Gerardo I. Lopez President and Chief Executive Officer |
|
2017
|
|
$ | 1,030,000 | $ | – | $ | – | $ | 905,370 | $ | 154,482 (2) | $ | 2,089,852 | |||||||||||||
|
|
2016
|
|
$ | 1,030,000 | $ | – | $ | 12,020,400 | $ | 762,200 | $ | 97,563 | $ | 13,910,163 | ||||||||||||||
|
|
2015
|
|
$ | 356,164 | $ | 400,000 | $ | 4,449,000 | $ | – | $ | 51,482 | $ | 5,256,646 | ||||||||||||||
| Jonathan S. Halkyard, Chief Financial Officer |
|
2017
|
|
$ | 600,000 | $ | – | $ | 614,689 | $ | 522,400 | $ | 29,992 (3) | $ | 1,767,081 | |||||||||||||
|
|
2016
|
|
$ | 583,495 | $ | – | $ | 610,664 | $ | 426,786 | $ | 16,261 | $ | 1,637,206 | ||||||||||||||
|
|
2015
|
|
$ | 560,714 | $ | – | $ | 2,344,423 | $ | 558,668 | $ | 83,240 | $ | 3,547,045 | ||||||||||||||
| Kevin A. Henry, Chief Human Resources Officer |
|
2017
|
|
$ | 445,600 | $ | – | $ | 455,721 | $ | 391,682 | $ | 10,897 (4) | $ | 1,303,900 | |||||||||||||
|
|
2016
|
|
$ | 432,600 | $ | – | $ | 452,740 | $ | 320,124 | $ | 12,509 | $ | 1,217,973 | ||||||||||||||
|
|
2015
|
|
$ | 412,986 | $ | – | $ | 318,116 | $ | 417,900 | $ | 5,446 | $ | 1,154,448 | ||||||||||||||
| John R. Dent, General Counsel and Corporate Secretary |
|
2017
|
|
$ | 425,000 | $ | – | $ | 379,770 | $ | 373,575 | $ | 82,970 (5) | $ | 1,261,315 | |||||||||||||
|
|
2016
|
|
$ | 360,500 | $ | – | $ | 377,294 | $ | 266,770 | $ | 114,371 | $ | 1,118,935 | ||||||||||||||
|
|
2015
|
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| M. Thomas Buoy, Executive Vice President, Revenue |
|
2017
|
|
$ | 432,500 | $ | – | $ | 499,674 | $ | 371,949 | $ | 14,809 (6) | $ | 1,318,932 | |||||||||||||
|
|
2016
|
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| 2015 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||
| (1) | The amounts included in the “Stock Awards” column represent the grant date fair value of the restricted stock units granted, computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 14—Equity-Based Compensation to the audited consolidated and combined financial statements of Extended Stay America, Inc. included in the combined annual report on Form 10-K for the fiscal year ended December 31, 2017 of the Corporation and ESH REIT. |
| (2) | This amount includes (i) $36,000 in Mr. Lopez’s cost of living allowance and a related gross-up of $23,115, (ii) $30,900 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Lopez, (iii) $35,502 in cost of travel to and from Charlotte, North Carolina and a related gross-up of $17,405, (iv) $11,377 in matching contributions made to the 401(k) Plan on behalf of Mr. Lopez and (v) $183 in long-term disability costs paid by the Corporation. |
| (3) | This amount includes (i) $17,809 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Halkyard, (ii) $12,000 in matching contributions made to the 401(k) Plan on behalf of Mr. Halkyard, and (iii) $183 in long-term disability costs paid by the Corporation. |
| (4) | This amount includes (i) $10,714 in matching contributions made to the 401(k) Plan on behalf of Mr. Henry and (ii) $183 in long-term disability costs paid by the Corporation. |
| (5) | This amount includes (i) $24,000 in Mr. Dent’s cost of living allowance and a related gross-up of $16,451, (ii) $19,747 in cost of travel to and from Charlotte, North Carolina and a related gross-up of $9,704, (iii) $8,227 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Dent, (iv) $4,658 in matching contributions made to the 401(k) Plan on behalf of Mr. Dent and (v) $183 in long-term disability costs paid by the Corporation. |
| (6) | This amount includes (i) $8,358 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Buoy, (ii) $6,268 in matching contributions made to the 401(k) Plan on behalf of Mr. Buoy, and (iii) $183 in long-term disability costs paid by the Corporation. |
|
|
2018 PROXY STATEMENT | 39 |
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| proposal 2: say-on-pay |
The following table summarizes the awards granted to each of the NEOs during the fiscal year ended December 31, 2017. The estimated possible payouts of the non-equity incentive plan awards in 2017 and the performance measures used to calculate such awards are discussed above in the section entitled “Annual Cash Incentive Awards.”
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
Estimated Possible Payouts Under Equity Incentive Plan Awards |
All Other Stock Awards: Number of Paired Shares of Stock or Units (#) |
Grant Date Fair Value of Paired Shares of Stock or Units |
|||||||||||||||||||||||||||||||||
| Name | Grant Date |
Threshold | Target | Maximum |
Threshold |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||
| Gerardo I. |
— | $0 | $ | 1,030,000 | $ | 2,060,000 | ||||||||||||||||||||||||||||||
| Lopez
|
||||||||||||||||||||||||||||||||||||
|
Jonathan S. |
— | $0 | $ | 600,000 | $ | 1,200,000 | ||||||||||||||||||||||||||||||
| Halkyard |
2/21/2017 | — | $ | — | $ | — | — | — | — | 10,333(1) | $ | 180,311 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 6,028 | 12,056 | 24,112(2) | — | $ | 210,377 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 6,028 | 12,056 | 18,084(3) | — | $ | 224,000 | (4) | ||||||||||||||||||||||||
| Kevin A. |
— | $0 | $ | 445,600 | $ | 891,200 | ||||||||||||||||||||||||||||||
| Henry |
2/21/2017 | — | $ | — | $ | — | — | — | — | 7,661(1) | $ | 133,684 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,469 | 8,938 | 17,876(2) | — | $ | 155,968 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,469 | 8,938 | 13,407(3) | — | $ | 166,068 | (4) | ||||||||||||||||||||||||
| John R. |
— | $0 | $ | 425,000 | $ | 850,000 | ||||||||||||||||||||||||||||||
| Dent |
2/21/2017 | — | $ | — | $ | — | — | — | — | 6,384(1) | $ | 111,401 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 3,725 | 7,449 | 14,898(2) | — | $ | 129,985 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 3,724 | 7,448 | 11,172(3) | — | $ | 138,384 | (4) | ||||||||||||||||||||||||
| M. Thomas |
— | $0 | $ | 423,150 | $ | 846,300 | ||||||||||||||||||||||||||||||
| Buoy |
2/21/2017 | — | $ | — | $ | — | — | — | — | 7,219(5) | $ | 111,401 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,212 | 8,423 | 16,846(2) | — | $ | 146,981 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,211 | 8,422 | 12,633(3) | — | $ | 156,481 | (4) | ||||||||||||||||||||||||
| 5/17/2017 | — | — | — | — | — | — | 4,000(6) | $ | 84,811 | |||||||||||||||||||||||||||
| (1) | Represents grant of service-based restricted stock units made on February 21, 2017. Under the terms of the award agreement, one-third of the restricted stock units vested on February 21, 2018 and one-third of the restricted stock units are scheduled to vest on each of February 21, 2019, and February 21, 2020. |
| (2) | Represents grant of performance-based restricted stock units with annual EBITDA performance vesting conditions. Under the terms of the award agreement, these restricted stock units have the ability to earn Paired Shares in a range of 0% to 200% of the awarded number of restricted stock units based on linear interpolation of the achievement of an annual EBITDA performance target. One-third of the restricted stock units vested on December 31, 2017 at 87.9 %. One-third of the restricted stock units are scheduled to vest on December 31, 2018 and one-third of the restricted stock units are scheduled to vest on December 31, 2019. |
| 40 | 2018 PROXY STATEMENT |
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| (3) | Represents grant of performance-based restricted stock units granted on February 21, 2017 with market vesting conditions. Under the terms of the award agreement, the restricted stock units are scheduled to vest on December 31, 2020, with the ability to earn Paired Shares in a range of 0% to 150% of the awarded number of restricted stock units based on linear interpolation of the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreement. |
| (4) | Grant date fair value of restricted stock units with annual performance vesting conditions and market vesting conditions assumes that awards will vest at target. If highest levels of performance and market conditions are achieved, grant date fair value would be higher. |
| (5) | Represents grant of 7,219 service-based restricted stock units made on February 21, 2017. Under the terms of the award agreement, one-third of the restricted stock units vested on February 21, 2018 and one-third of the restricted stock units are scheduled to vest on each of February 21, 2019 and February 21, 2020. |
| (6) | Also represents grant of 4,000 service-based restricted stock units made on May 17, 2017. Under the terms of the agreement, this award is scheduled to vest on May 16, 2018. |
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of securities underlying the equity awards held by each of the NEOs as of the fiscal year ended December 31, 2017.
|
Stock Awards |
||||||||||||||||
| Name | Number of
Shares or Units of Stock That Have Not Vested |
Market Value of Shares or |
Equity Incentive Plan Awards: Number of Unearned Paired or Other Rights that Have Not Yet |
Equity Incentive Plan
Awards: Units or Other Rights that Have Not Yet Vested(1) |
||||||||||||
| Gerardo I. Lopez |
123,333 | (2) | $ | 2,343,327 | — | (3) | $ | — | ||||||||
| Jonathan S. Halkyard |
32,597 | (4) | $ | 619,343 | 27,400 | (5) | $ | 520,600 | ||||||||
| Kevin A. Henry |
3,798 | (6) | $ | 72,162 | 20,315 | (7) | $ | 385,976 | ||||||||
| John R. Dent |
14,052 | (8) | $ | 266,988 | 16,928 | (9) | $ | 321,623 | ||||||||
| M. Thomas Buoy |
16,581 | (10) | $ | 315,020 | 15,388 | (11) | $ | 292,363 | ||||||||
| (1) | As of December 31, 2017, the fair market value of a Paired Share was $19.00. The number of Paired Shares included in this column includes [the target number of] (x) restricted stock units subject to annual EBITDA performance vesting conditions and (y) restricted stock units subject to vesting based on total shareholder return, in each case, as described in the Grants of Plan-Based Awards Table. For Messrs. Halkyard, Henry, Dent and Buoy, vested restricted stock units will be settled on the 15th day of March (or, in any year when the 15th day of March falls on a non-business day, the business day immediately prior to such date) immediately following the applicable vesting date except that 4,000 restricted stock units of Mr. Buoy will settled on the 15th day of September (or, in any year when the 15th day of September falls on a non-business day, the business day immediately prior to such date) immediately following the applicable vesting date. |
| (2) | Mr. Lopez’s service-based restricted stock units vested on March 12, 2018 and were settled on March 15, 2018. |
| (3) | For Mr. Lopez, the restricted stock units included in this column exclude 92,295 shares that vested at 87.9% based on 2017 performance and which were settled on March 15, 2018. |
| (4) | Mr. Halkyard’s service-based restricted stock units are scheduled to vest as follows: (i) 3,444 on February 21, 2019, (ii) 4,572 on March 12, 2019 and (iii) 3,444 on February 21, 2020. 21,137 of Mr. Halkyard’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
| (5) | For Mr. Halkyard, the restricted stock units included in this column exclude 10,633 shares that vested at 87.9% based on 2017 performance and 8,325 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
| (6) | Represents grant of 4,000 service-based restricted stock units made on May 17, 2017. Under the terms of the agreement, this award is scheduled to vest on May 16, 2018. |
|
|
2018 PROXY STATEMENT | 41 |
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| proposal 2: say-on-pay |
| (7) | For Mr. Henry, the restricted stock units included in this column exclude 7,870 shares that vested at 87.9% based on 2017 performance and 6,054 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
| (8) | Mr. Dent’s service-based restricted stock units are scheduled to vest as follows: (i) 2,218 on February 21, 2019, (ii) 2,825 on March 12, 2019 and (iii) 2,128 on February 21, 2020. 6,971 of Mr. Dent’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
| (9) | For Mr. Dent, the restricted stock units included in this column exclude 6,412 shares that vested at 87.9% based on 2017 performance and 4,541 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
| (10) | Mr. Buoy’s service-based restricted stock units are scheduled to vest as follows: (i) 4,000 on May 17, 2018, (ii) 2,407 on February 21, 2019, (iii) 1,907 on March 12, 2019 and (iv) 2,407 on February 21, 2020. 5,860 of Mr. Buoy’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
| (11) | For Mr. Buoy, the restricted stock units included in this column exclude 5,444 shares that vested at 87.9% based on 2017 performance and 3,481 shares that vested at 100% based on rTSR, both of which settled on March 15, 2018. |
The following table summarizes the vested or settled Paired Shares acquired by each of the NEOs during the fiscal year ended December 31, 2017.
| Stock Awards | ||||||
| Name |
Number of Paired Shares Acquired on Vesting or Settlement (#)(1) |
Value Realized on Vesting or Settlement ($) | ||||
| Gerardo I. Lopez |
215,628 | $ 4,035,829 | ||||
| Jonathan S. Halkyard |
36,682 | $ 678,150 | ||||
| Kevin A. Henry |
33,339 | $ 604,579 | ||||
| John R. Dent |
15,796 | $ 301,825 | ||||
| M. Thomas Buoy |
18,648 | $ 342,181 | ||||
| (1) | Represents Paired Shares received in settlement of vested restricted stock units granted under the Equity Incentive Plan. |
| 42 | 2018 PROXY STATEMENT |
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Table of Contents
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The following table summarizes participation by our NEOs in our defined contribution plan that provides for the deferral of compensation on a basis that is not tax-qualified:
|
Executive |
Registrant Contributions in Last FY(1) |
Aggregate Earnings in Last FY |
Aggregate Withdrawals/ Distributions(2) |
Aggregate Balance at Last |
||||||||||||||||
| Gerardo I. Lopez |
$ | 103,000 | $ | 30,900 | $ | 15,267 | $ |
– |
$ | 149,167 | ||||||||||
| Jonathan S. Halkyard |
$ | 35,619 | $ | 17,810 | $ | 3,013 | $ | – | $ | 56,442 | ||||||||||
| Kevin A. Henry |
$ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| John R. Dent |
$ | 16,454 | $ | 8,227 | $ | 1,776 | $ | – | $ | 26,457 | ||||||||||
| H. Thomas Buoy |
$ | 16,716 | $ | 8,358 | $ | 2,329 | $ | – | $ | 27,402 | ||||||||||
| (1) | Amounts included in this column are also reflected in “All Other Compensation” as reported in the Summary Compensation Table. |
| (2) | Withdrawals and distributions permitted after a minimum of two years after enrollment. Plan is not yet two years old. |
Our nonqualified deferred compensation plan provides an opportunity for NEOs and other eligible associates to increase savings and retirement accumulation on a tax-advantaged basis, beyond the limits of the company’s 401(k) plan. The plan allows participants to defer (i) up to 50% of annual compensation from base compensation and up to 100% of annual compensation from earned incentive bonus, and (ii) any 401(k) plan contributions returned as a result of any failure of the 401(k) plan to pass non-discrimination testing. The plan provides an alternative method for participants to save and invest on a pretax basis and utilize a diverse choice of investment options.
The Company matches 50% of base salary deferrals for the first 6% of base salary deferred. Match contributions are capped at the lesser of (i) 3% of base salary or (ii) amounts deferred beyond $275,000 of a participant’s total annual compensation.
Distributions can be made upon separation from service, unforeseeable emergency, disability or death, or an in-service specified date. Distribution timing is elected by the plan participant at the time of enrollment. The participant selects investment funds from a broad range of options. Earnings and losses on each account are determined based on the performance of the investment funds selected by the participant.
Potential Payments Upon Termination or Change in Control
The summary description and tables below describe the arrangements that were in effect for each of our NEOs as of December 31, 2017. As of such date, each of our NEOs was subject to the terms of the Severance Plan.
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The Severance Plan provides that in the event a participant is terminated without Cause or by the participant for Good Reason, the participant shall be entitled to the following payments and benefits (collectively, the “Severance Plan Benefits”), subject to execution and delivery of a release of claims:
| ñ | a cash payment equal to the sum of (A) 1.0 x annual base salary in effect immediately prior to the date of termination, and (B) 1.0 x target annual bonus for the year in which termination occurs, payable in a single lump sum within sixty (60) days following the date of termination (for the CEO, 1.5 x in both instances); |
| ñ | continued eligibility to participate in ESA Management’s group health plans pursuant to COBRA, provided, that, for 12 months following the date of termination, the participant shall be responsible for the payment of the portion of the costs associated with such health coverage continuation equal to the amount paid by an active employee for similar coverage and ESA Management shall pay the balance of the cost for such coverage, provided, further, that ESA Management’s obligation to pay such balance shall cease if the participant becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise; and |
| ñ | payment for executive outplacement services provided by a firm to be determined by ESA Management in its sole discretion for a period of six months following the date of termination. |
Pursuant to the Severance Plan, each of our NEOs is bound by perpetual confidentiality and non-disparagement restrictions, and non-solicitation and non-competition restrictions that extend for the one-year period following a termination by ESA Management without Cause or by the executive for Good Reason.
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Upon a Change in Control, with respect to each of our NEOs, restricted stock units which are not vested as of the date of the Change in Control would vest immediately upon such Change in Control.
| Base Salary | Bonus Amount |
Benefits |
Equity Acceleration(2) |
Total | ||||||||||||||||
|
Upon Termination by ESA
Management without Cause or by the Executive for Good |
||||||||||||||||||||
|
Gerardo I. Lopez
|
$ | 1,545,000 | $ | 1,545,000 | $ | 20,066 | — | $ | 3,110,066 | |||||||||||
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Jonathan S. Halkyard
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$ | 600,000 | $ | 600,000 | $ | 20,066 | — | $ | 1,220,066 | |||||||||||
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Kevin A. Henry
|
$ | 445,600 | $ | 445,600 | $ | 19,003 | — | $ | 910,203 | |||||||||||
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John R. Dent
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$ | 425,000 | $ | 425,000 | $ | 20,066 | — | $ | 870,066 | |||||||||||
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H. Thomas Buoy
|
$ | 432,500 | $ | 432,500 | $ | 20,066 | — | $ | 885,066 | |||||||||||
|
Upon Termination by ESA
Management without Cause or by the Executive for Good
|
||||||||||||||||||||
|
Gerardo I. Lopez
|
$ | 1,545,000 | $ | 1,545,000 | $ | 20,066 | $ | 2,343,327 | $ | 5,453,393 | ||||||||||
|
Jonathan S. Halkyard
|
$ | 600,000 | $ | 600,000 | $ | 20,066 | $ | 1,196,943 | $ | 2,417,009 | ||||||||||
|
Kevin A. Henry
|
$ | 445,600 | $ | 445,600 | $ | 19,003 | $ | 711,474 | $ | 1,621,677 | ||||||||||
|
John R. Dent
|
$ | 425,000 | $ | 425,000 | $ | 20,066 | $ | 588,620 | $ | 1,458,686 | ||||||||||
|
H. Thomas Buoy
|
$ | 432,500 | $ | 432,500 | $ | 20,066 | $ | 607,411 | $ | 1,492,477 | ||||||||||
| (1) | Amounts in this column represent the value of the benefits continuation and executive outplacement services provided under the Severance Plan. |
| (2) | \Amounts in this column represent the value of the acceleration of restricted stock units which were outstanding as of December 31, 2017. As of December 31, 2017, the fair market value of a Paired Share was $19.00. |
| (3) | The equity acceleration reflected in this section of the table occurs upon a Change in Control (assumed to occur on December 31, 2017), whether or not there is a termination of employment. |
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For purposes of the equity awards, the terms below are generally defined as follows:
| ñ | “Change in Control” is defined in the Amended and Restated Extended Stay America, Inc. Long-Term Incentive Plan and generally means the occurrence of any of the following events with respect to the Corporation: (a) any person (other than any person in connection with a non-control transaction as defined below) acquires securities of the Corporation representing fifty percent or more of the combined voting power of the Corporation’s then outstanding voting securities; (b) a majority of the members of the board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the board of directors serving immediately prior to such appointment or election; (c) any merger, consolidation or reorganization, unless shareholders immediately before such merger, consolidation or reorganization continue to own at least a majority of the combined voting power of such surviving entity following the transaction; (d) a complete liquidation or dissolution; or (e) sale or disposition of all or substantially all of the assets. A “non-control transaction” generally includes any transaction in which (a) shareholders immediately before such transaction continue to own at least a majority of the combined voting power of such resulting entity following the transaction; (b) a majority of the members of the board of directors immediately before such transaction continue to constitute at least a majority of the board of the surviving entity following such transaction; or (c) with certain exceptions, no person other than any person who had beneficial ownership of more than fifty percent of the combined voting power of the Corporation’s then outstanding voting securities immediately prior to such transaction has beneficial ownership of more than fifty percent of the combined voting power of the surviving entity’s outstanding voting securities immediately after such transaction. |
For purposes of the Severance Plan and certain of Mr. Halkyard’s restricted stock units, the terms below are generally defined as provided below:
| ñ | “Cause” means with respect to the termination of a participant by ESA Management, such participant’s (i) refusal or neglect to perform substantially his employment-related duties or services, (ii) personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) indictment for, conviction of or entering a plea of guilty or nolo contendere to a crime constituting a felony or his willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment or services to the Company which does not adversely affect the Company or its reputation or the ability of the participant to perform his employment-related duties or services or to represent the Company), (iv) failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or (v) material breach of any written covenant or agreement with the Company not to disclose any information pertaining to the Company or not to compete or interfere with the Company. |
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| ñ | “Good Reason” means any of the following, without the participant’s written consent: (a) a material diminution in a participant’s base salary; (b) a material diminution in a participant’s authority, duties or responsibilities; (c) a material change in the geographic location at which the participant must perform the services; or (d) any other action or inaction that constitutes a material breach by the service recipient of the agreement under which the participant provides services; provided, however, that a termination by the participant for any of the reasons listed in (a) through (d) above shall not constitute termination for Good Reason unless the participant shall first have delivered to ESA Management written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than sixty (60) days after the initial occurrence of such event), and ESA Management fails to cure such event within thirty (30) days after receipt of this written notice. The participant’s employment must be terminated for Good Reason within one hundred twenty (120) days after the occurrence of an event of Good Reason. A resignation by the participant for Good Reason effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code and Treas. Reg. Section 1.409A-1(n)(2). Good Reason shall not include the participant’s death or disability. |
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ratification of auditor
appointment
|
3 |
Proposal No. 3 The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. | |
|
Recommendation The Board unanimously recommends that you vote “FOR” Proposal No. 3 to ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of Extended Stay America, Inc. for the fiscal year ending December 31, 2018.
|
The Audit Committee of the Board has appointed Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the fiscal year ending December 31, 2018. Deloitte also served as our independent registered accounting firm for fiscal year 2017. The services provided to us by Deloitte in fiscal year 2017 are described in the section of this Proxy Statement entitled “Independent Registered Public Accounting Firm’s Fees and Services.” Representatives of Deloitte will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they so desire.
The Audit Committee is responsible for selecting the Corporation’s independent registered public accounting firm for 2018. Accordingly, shareholder approval is not required to appoint Deloitte as the Corporation’s independent registered public accounting firm. However, the Board believes that the submission of the Audit Committee’s selection to the shareholders for ratification is a matter of good corporate governance. If the Corporation’s shareholders do not ratify the selection of Deloitte as the Corporation’s independent registered public accounting firm, the Audit Committee will review its future selection of an independent registered public accounting firm. The Audit Committee may retain another independent registered public accounting firm at any time during the year if it concludes that such change would be in the best interest of the Corporation’s shareholders.
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S FEES AND SERVICES
The following is a description of the professional services performed and the fees billed by Deloitte for the years ended December 31, 2017 and 2016.
| Type of Fees
|
December 31, 2017
|
December 31, 2016
|
||||||||
|
Audit Fees(1)
|
$ | 2,504,500 | $ | 2,762,500 | ||||||
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Tax Fees(2)
|
$ | — | $ | 130,752 | ||||||
|
All Other Fees(3)
|
$ | 1,895 | $ | 1,895 | ||||||
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Total
|
$ | 2,506,395 | $ | 2,895,147 | ||||||
| (1) | Audit fees consist of fees for the audit of the annual financial statements included in our combined annual reports on Form 10-K, quarterly reviews of the financial statements included in our combined quarterly reports on Form 10-Q, accounting consultation and other attestation services provided by Deloitte in connection with statutory and regulatory filings. Audit fees also include fees for services provided by Deloitte in connection with the 2017 and 2016 secondary offerings, 2017 debt repricing, 2017 sales of hotel properties as well as services performed in connection with our Franchise Disclosure Document, and 2016 debt offering. |
| (2) | Tax fees are fees for tax compliance, tax advice and tax planning for entities required to file tax returns. |
| (3) | All other fees are fees for other permissible work performed by Deloitte that does not meet the above category descriptions, including Technical Library subscription fees. |
The Audit Committee has considered whether the non-audit services provided by Deloitte were compatible with maintaining Deloitte’s independence and has determined that the nature and substance of the non-audit services did not impair the status of Deloitte as the Corporation’s independent registered public accounting firm.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT RELATED SERVICES OF INDEPENDENT AUDITORS
The Audit Committee is responsible for the appointment, compensation, retention, oversight and termination of the Corporation’s independent registered public accounting firm. The Audit Committee has adopted a policy requiring that substantially all audit, audit-related and non-audit services provided by the independent auditor be pre-approved by the Audit Committee. Pre-approval is not necessary for certain minor non-audit services that (i) do not constitute more than 5% of the total amount of revenues paid by the Corporation to Deloitte during the fiscal year the non-audit services were provided and (ii) were not recognized by the Corporation to be non-audit services at the time of the engagement for such services. In the case of such minor non-audit services that are not pre-approved, the services must be promptly brought to the attention of the Audit Committee and approved prior to completion. The Audit Committee may delegate authority to one or more independent members of the committee to grant pre-approvals of audit and permitted non-audit services, provided that any such pre-approvals are presented to the full Audit Committee at its next scheduled meeting. During 2017, 100% of the non-audit services provided to us by Deloitte were pre-approved by the Audit Committee.
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The Audit Committee has adopted a policy that prohibits our independent auditors from providing the following services:
| ñ | bookkeeping or other services related to the accounting records or financial statements of the Corporation; |
| ñ | financial information systems design and implementation; |
| ñ | appraisal or valuation services, providing fairness opinions or preparing contribution-in-kind reports; |
| ñ | actuarial services; |
| ñ | internal audit outsourcing services; |
| ñ | management functions or human resources; |
| ñ | broker or dealer, investment adviser or investment banking services; |
| ñ | legal services and expert services unrelated to the audit; and |
| ñ | any other service that the Public Company Accounting Oversight Board prohibits through regulation. |
The Audit Committee’s pre-approval policy is in the Audit Committee Charter, which is available on the investor relations section of our website at www.aboutstay.com.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The Audit Committee consists of Mr. Wallman, Mr. Geoga, Ms. Keszler, and Mr. O’Toole, with Mr. Wallman serving as Chair. The Audit Committee oversees the Corporation’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including maintaining an effective system of internal controls over financial reporting. The Audit Committee meets separately with management, the Corporation’s internal auditors and the independent registered public accounting firm. The Audit Committee operates under a written charter approved by the Board, a copy of which is available on the investor relations section of our website at www.aboutstay. com. The charter, among other things, provides that the Audit Committee has full authority to appoint, compensate, retain, oversee and terminate when appropriate, the independent auditor.
In addition to fulfilling its oversight responsibilities as set forth in its charter and further described above in the sections titled “Corporate Governance and Board Matters—Board Oversight of Risk Management” and “Corporate Governance and Board Matters—Committees of the Board—Audit Committee,” the Audit Committee has done the following:
| ñ | reviewed and discussed the audited financial statements in the Company’s combined annual report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements; |
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| ñ | reviewed with Deloitte, the Corporation’s independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality and acceptability of the Corporation’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards; |
| ñ | received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence, regarding Deloitte’s communications with the Audit Committee concerning independence; |
| ñ | discussed with Deloitte its independence from management and the Corporation and considered whether Deloitte could also provide non-audit services without compromising the firm’s independence; |
| ñ | discussed with Deloitte the matters required to be discussed by the standards of the Public Company Accounting Oversight Board, including Public Company Accounting Oversight Board Auditing Standard No. 16, Communications with Audit Committees, and SEC Rules and Regulations, including Rule 2-07, Communication with Audit Committees, of Regulation S-X; and |
| ñ | discussed with the Corporation’s internal auditors and Deloitte the overall scope and plans for their respective audits, and then met with the internal auditors and Deloitte, with and without management present, to discuss the results of their examinations, their evaluations of the Corporation’s internal controls and the overall quality of the Corporation’s financial reporting. |
Based on the foregoing reviews and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the combined annual report on Form 10-K for the year ended December 31, 2017, for filing with the SEC. The Audit Committee also appointed Deloitte to serve as the Corporation’s independent registered public accounting firm for 2018.
This report has been furnished by the members of the Audit Committee of the Board:
Richard F. Wallman, Chair
Douglas G. Geoga
Ellen Keszler
Thomas F. O’Toole
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of the Corporation and ESH REIT shares of capital stock as of April 5, 2018 by:
| ñ | each current director and director nominee of the Corporation; |
| ñ | each of the named executive officers of the Corporation; |
| ñ | each shareholder known to us to own beneficially more than 5% of the outstanding shares of the Corporation and ESH REIT shares of capital stock; and |
| ñ | all of the executive officers and current directors of the Corporation as a group. |
Percentage of class beneficially owned is based on 190,471,604 Paired Shares, 250,493,583 shares of Class A common stock of ESH REIT and 7,133 shares of Corporation voting preferred stock outstanding as of April 5, 2018.
No individual entity owns, actually or constructively, more than 9.8% of the Paired Shares, as provided in the respective charters of the Corporation and ESH REIT.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities that the table names have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Paired Shares issuable upon the settlement of restricted stock units occurring within 60 days of the date of this Proxy Statement are deemed to be outstanding and to be beneficially owned by the person holding the restricted stock units for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, the business address for each of our beneficial owners is c/o Extended Stay America, Inc., 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277:
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CORPORATION
|
ESH REIT†
|
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| Shares of Common Stock Beneficially Owned |
Shares of Voting Beneficially |
Shares
of Class B Common Stock Beneficially Owned |
Total Shares of ESH
REIT |
Paired Shares Beneficially Owned |
||||||||||||||||||||||||||||||||||||
|
Name and Address
|
Number | Percent | Number | Percent | Number | Percent | Number | Percent | Number | Percent | ||||||||||||||||||||||||||||||
|
The Vanguard Group(1)
|
15,965,287 | 8.4% | – | – | 15,965,287 | 8.4% | 15,965,287 | 3.6% | 15,965,287 | 8.4% | ||||||||||||||||||||||||||||||
|
Jonathan S. Halkyard(2)
|
398,040 | * | – | – | 398,040 | * | 398,040 | * | 398,040 | * | ||||||||||||||||||||||||||||||
|
Kevin A. Henry
|
42,211 | * | – | – | 42,211 | * | 42,211 | * | 42,211 | * | ||||||||||||||||||||||||||||||
|
John R. Dent
|
20,495 | * | – | – | 20,495 | * | 20,495 | * | 20,495 | * | ||||||||||||||||||||||||||||||
|
M. Thomas Buoy
|
125,531 | * | – | – | 125,531 | * | 125,531 | * | 125,531 | * | ||||||||||||||||||||||||||||||
|
Douglas G. Geoga(3)
|
488,898 | * | 7 | * | 488,898 | * | 488,898 | * | 488,898 | * | ||||||||||||||||||||||||||||||
|
Kapila K. Anand
|
10,363 | * | – | – | 10,363 | * | 10,363 | * | 10,363 | * | ||||||||||||||||||||||||||||||
|
Ellen Keszler
|
– | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
|
Jodie McLean
|
2,392 | * | – | – | 2,392 | * | 2,392 | * | 2,392 | * | ||||||||||||||||||||||||||||||
|
Thomas F. O’Toole
|
8,060 | * | – | – | 8,060 | * | 8,060 | * | 8,060 | * | ||||||||||||||||||||||||||||||
|
Richard F. Wallman(4)
|
237,561 | * | 20 | * | 237,561 | * | 237,561 | * | 237,561 | * | ||||||||||||||||||||||||||||||
| Geraldo I. Lopez(5)
|
249,356 | * | – | – | 249,356 | * | 249,356 | * | 249,356 | * | ||||||||||||||||||||||||||||||
|
All directors and executive officers of the Corporation, as a group (15 persons)
|
1,365,295 | * | 27 | * | 1,365,295 | * | 1,365,295 | * | 1,365,295 | * | ||||||||||||||||||||||||||||||
| † | 100% of the Class A common stock of ESH REIT or 250,493,583 shares of Class A common stock is held by the Corporation. |
| * | Less than 1%. |
| (1) | The Vanguard Group filed a Schedule 13G with the Securities and Exchange Commission on February 8, 2018 to report beneficial ownership of 15,965,287 Paired Shares held by The Vanguard Group as of December 31, 2017. The Vanguard Group reports that it has the sole power to vote with respect to 104,355 Paired Shares, shared power to vote with respect to 34,083 shares, and the sole power to dispose of 15,842,596 such Paired Shares and shared power to dispose of 122,691 such Paired Shares. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. |
| (2) | Mr. Halkyard owns 10,000 of the Paired Shares included in the table through the Halkyard Family Trust. Mr. Halkyard serves as the trustee of the Halkyard Family Trust. |
| (3) | Mr. Geoga owns 353,276 of the Paired Shares and 7 shares of voting preferred stock through the Douglas Geoga Family Dynasty Trust. Michelle J. Geoga and Michael E. Dowdle, as the co-trustees of the Douglas Geoga Family Dynasty Trust, share the power to vote and invest the Paired Shares and shares of voting preferred stock, but each disclaims beneficial ownership of such securities. Mr. Geoga may be deemed to beneficially own the securities but disclaims beneficial ownership of such securities. |
| (4) | Mr. Wallman owns 80,005 Paired Shares through the Richard F. Wallman IRA, 13,800 Paired Shares through the Amy Wallman IRA, 9,800 Paired Shares through the Richard F. Wallman SEP and 18,200 Paired Shares through the Amy Wallman SEP. |
| (5) | Mr. Lopez resigned as President, Chief Executive Officer and director of the Corporation effective January 1, 2018. Holdings shown are as reported by Mr. Lopez to the Corporation on April 5, 2018. |
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Section 16(a) of the Exchange Act requires our executive officers and directors and each person who owns more than 10% of our outstanding common stock, to file reports of their stock ownership and changes in their ownership of our common stock with the SEC and the NYSE. These same people must also furnish us with copies of these reports and representations made to us that no other reports were required. We have performed a general review of such reports and amendments thereto filed in 2017. Based solely on our review of the copies of such reports furnished to us and inquiries we have made, as appropriate, to our knowledge all of our Section 16 officers and directors, and other persons who owned more than 10% of our outstanding common stock, fully complied with the reporting requirements of Section 16(a) during 2017, except for (i) two Form 4 filings for Mr. Lopez, each reporting one transaction, filed on September 22, 2017, which were due on February 23, 2017 and September 18, 2017, (ii) an amendment to a Form 4 filing for Mr. Thomas Bardenett filed on April 24, 2017, updating information regarding one transaction which was due on February 23, 2017, (iii) a Form 4 filing for Mr. Buoy reporting one transaction, filed on April 6, 2018, which was due on May 17, 2017, and (iv) a Form 4 filing for Mr. Flynn reporting one transaction, filed on April 6, 2018, which was due on May 17, 2017.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transaction Policy
Our Board has adopted a Related Party Transaction Policy, which is designed to monitor and ensure the proper review, approval, ratification and disclosure of related party transactions involving us. This policy applies to any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeds $120,000, and in which any related party had, has or will have a direct or indirect material interest. The Audit Committee of the Board must review proposed related party transactions and may approve and ratify a related party transaction if such transaction is consistent with the Related Party Transaction Policy and is on terms, taken as a whole, which the Audit Committee believes are no less favorable to the Corporation than could be obtained in an arm’s-length transaction with an unrelated third party, unless the Audit Committee otherwise determines that the transaction is not in the best interests of the Corporation. Any related party transaction or modification of such transaction which the Board has approved or ratified by the affirmative vote of a majority of directors, who do not have a direct or indirect material interest in such transaction, does not need to be approved or ratified by the Audit Committee. In addition, related party transactions involving compensation will be approved by the Compensation Committee in lieu of the Audit Committee.
This section describes related party transactions between us and our directors, executive officers and 5% shareholders and their immediate family members that have occurred during the fiscal year ended December 31, 2017. Please also see “Certain Relationships and Related Party Transactions—Related Party Transactions” in ESH REIT’s Proxy Statement for a description of the related party transactions between us and ESH REIT that have occurred during the fiscal year ended December 31, 2017, which information is incorporated by reference herein.
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Investment funds of Paulson & Co., Inc. held 7,036 shares of the Corporation’s voting preferred stock as of December 31, 2017.
During the year ended December 31, 2017, the Corporation and ESH REIT repurchased and retired approximately 2.0 million shares of Corporation common stock and approximately 2.0 million shares of ESH REIT Class B common stock from certain entities affiliated with the Sponsors for approximately $21.4 million and $12.2 million, respectively. These Paired Shares were purchased in connection with secondary offerings consummated in the first and second quarters of 2017 and pursuant to, and counted toward, the combined Paired Share repurchase program of the Corporation and ESH REIT.
During the year ended December 31, 2017, the Corporation repurchased and retired approximately 14,069 shares of Series A Preferred Stock from Centerbridge and Blackstone. As of December 31, 2017, the Corporation has 7,133 Series A Preferred Stock outstanding and Centerbridge and Blackstone no longer beneficially own any Series A Preferred Stock.
In connection with the initial public offering, the Corporation and ESH REIT entered into a registration rights agreement with the Sponsors. Subject to certain limitations and conditions, this agreement provides the Sponsors a specified number, and in the case of short-form registrations, an unlimited number, of “demand” registrations and customary “piggyback” registration rights. The registration rights agreement also provides that the Corporation and ESH REIT will pay all expenses relating to such registrations and indemnify the Sponsor against certain liabilities which may arise under the Securities Act of 1933, as amended (the “Securities Act”).
Our CEO Pay Ratio was calculated in compliance with the requirement set forth in Item 402(u) of Regulation S-K. We estimated the ratio between the total compensation received by our CEO, Mr. Lopez, in 2017 to the median annual total compensation of all employees (other than Mr. Lopez). We used a consistently applied compensation measure across our entire employee population to calculate the median employee compensation as of December 31, 2017. For our consistently applied compensation measure we used total earnings of all full-time, part-time, and temporary associates employed during 2017. We then calculated the median employee’s compensation in the same manner as calculated for the named executive officers in the Summary Compensation Table. Mr. Lopez’s total compensation as reflected on the Summary Compensation Table was $2,089,852, compared to the median annual total compensation of $21,431, a ratio of 98:1.
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questions
Why am I receiving these materials?
You are receiving these materials because at the close of business on April 5, 2018 (the “Record Date”), you owned shares of the Corporation’s voting stock. All shareholders of record on the Record Date are entitled to attend and vote at the Annual Meeting.
We have two classes of capital stock that are entitled to vote at the annual meeting: Corporation common stock, $0.01 par value per share, and Corporation mandatorily redeemable preferred stock, $0.01 par value per share (“voting preferred stock”). Each share of Corporation common stock is attached to and trades as a single unit with a share of Class B common stock of ESH REIT, par value $0.01 per share, (each, a “Paired Share”). Shares of the Corporation voting preferred stock are not currently, and are not expected to be, registered for public sale or listed on the NYSE or any other securities exchange.
As of the Record Date, we had 190,471,604 shares of Corporation common stock outstanding and 7,133 shares of Corporation voting preferred stock outstanding. With respect to all of the matters submitted for vote at the Annual Meeting, each share of Corporation common stock is entitled to one vote and each share of Corporation voting preferred stock is entitled to one vote. The Corporation common stock and Corporation voting preferred stock will vote as a single class on each of the matters submitted at the Annual Meeting.
What information is contained in this Proxy Statement?
This Proxy Statement includes information about the nominees for director and other matters to be voted on at the Annual Meeting. It also explains the voting process and requirements; describes the compensation of the principal executive officer, the principal financial officer and the three other most highly compensated officers (collectively referred to as our “named executive officers”); describes the compensation of our directors; and provides certain other information that SEC rules require.
What shares are included on my proxy card?
You will receive one proxy card for all the shares of Corporation common stock and Corporation voting preferred stock that you hold as a shareholder of record (in certificate form or in book-entry form).
If you hold your shares in street name, you will receive voting instructions for each account you have with a broker, bank or other nominee.
| 56 | 2018 PROXY STATEMENT |
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| frequently asked | ||
|
questions |
What matters am I voting on, how may I vote on each matter and how does the Board recommend that I vote on each matter?
The following table sets forth each of the proposals you are being asked to vote on, how you may vote on each proposal and how the Board recommends that you vote on each proposal:
| Proposal | How may I vote? |
What does the Board recommend? | ||
|
1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
You may: ñ (i) vote FOR the election of all nominees named herein;
ñ (ii) withhold authority to vote for all such nominees; or
ñ (iii) vote FOR the election of all such nominees other than any nominees with respect to whom the vote is specifically withheld by indicating in the space provided on the proxy.
|
The Board recommends that you vote FOR all seven of the director nominees. | ||
|
2. An advisory vote on the Corporation’s executive compensation. |
You may vote FOR or AGAINST the approval, on an advisory basis, of the Corporation’s executive compensation, or you may indicate that you wish to ABSTAIN from voting on the matter.
|
The Board recommends that you vote FOR the approval, on an advisory basis, of the Corporation’s executive compensation. | ||
|
3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
You may vote FOR or AGAINST the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, or you may indicate that you wish to ABSTAIN from voting on the matter.
|
The Board recommends that you vote FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
What is the difference between holding shares as a shareholder of record and as a beneficial owner?
If your shares are registered directly in your name with the Corporation’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered the “shareholder of record” with respect to those shares. The full set of proxy materials would have been sent directly to you.
If your shares are held with a broker or in an account at a bank, you are considered the “beneficial owner” with respect to those shares. These shares are sometimes referred to as being held “in street name.” The full set of proxy materials have been forwarded to you by your broker, bank or other holder of record who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by using the voting instruction card included in the mailing or by following the instructions on the enclosed form of proxy for voting by telephone. You will not be able to vote these shares directly unless you obtain a signed legal proxy from your broker, bank or other nominee giving you the right to vote the shares.
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| frequently asked questions |
How do I vote if I am a shareholder of record?
As a shareholder of record, you may vote your shares in any one of the following ways:
| ñ | Vote on the Internet on the website shown on the proxy card; |
| ñ | Call the toll-free number shown on the proxy card; |
| ñ | Mark, sign, date and return the enclosed proxy card in the postage-paid envelope; or |
| ñ | Vote in person at the Annual Meeting. |
Whether or not you plan to attend the Annual Meeting, we urge you to vote. Returning the proxy card or voting by telephone will not affect your right to attend the Annual Meeting and vote in person.
How do I vote if I am a beneficial owner?
As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares by following the instructions that your broker, bank or other nominee sent to you. You will receive proxy materials and voting instructions for each account that you have with a broker, bank or other nominee. As a beneficial owner, if you wish to change the directions that you have provided your broker, bank or other nominee, you should follow the instructions that your broker, bank or other nominee sent to you.
As a beneficial owner, you are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a signed legal proxy from your broker, bank or other nominee giving you the right to vote the shares.
How can I attend the Annual Meeting?
You are entitled to attend the Annual Meeting only if you were a shareholder of record as of the Record Date or you hold a valid proxy for the Annual Meeting as described in the previous question. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. You should be prepared to present photo identification for admittance. If you are not a shareholder of record but hold shares as a beneficial owner, you should provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to April 5, 2018, a copy of the voting instruction card provided by your broker, bank or other nominee, or other similar evidence of ownership. You may contact us via the Internet or by telephone at (980) 345-1600 to obtain directions to vote in person at the Annual Meeting.
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| frequently asked
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| questions | ||||
What can I do if I change my mind after I vote?
If you are a shareholder of record, you can revoke your proxy before it is exercised by:
| ñ | written notice of revocation to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277; |
| ñ | timely delivery of a valid, later-dated proxy or a later-dated vote by telephone; or |
| ñ | attending the Annual Meeting and voting in person by ballot. |
If you are a beneficial owner of shares but not the record holder, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the question “How do I vote if I am a beneficial owner?” above. All shares that have been properly voted and not revoked will be voted at the Annual Meeting.
What if I return my proxy card or vote by Internet or phone but do not specify how I want to vote?
If you are a shareholder of record and sign and return your proxy card or complete the Internet or telephone voting procedures, but do not specify how you want to vote your shares, we will vote them as follows:
| ñ | FOR the election of the director nominees. |
| ñ | FOR the approval, on an advisory basis, of the Corporation’s executive compensation. |
| ñ | FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
What votes need to be present to hold the Annual Meeting?
Under our Second Amended and Restated Bylaws, a quorum will exist at the Annual Meeting if shareholders holding a majority of the shares entitled to vote at the Annual Meeting are present in person or by proxy. Shareholders of record who return a proxy or vote in person at the meeting will be considered part of the quorum. Abstentions are counted as “present” for determining a quorum. Uninstructed broker votes, also called “broker non-votes,” are also counted as “present” for determining a quorum so long as there is at least one matter that a broker may vote on without specific instructions from a beneficial owner. See “What is the effect of broker non-votes?” below.
How are votes counted?
In the election of directors, your vote may be cast “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. If you withhold your vote with respect to any nominee, your shares will not be considered to have been voted for or against the nominee. For all other proposals, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote “AGAINST.” If you sign your proxy card with no further instructions and you are a shareholder of record, then your shares will be voted in accordance with the recommendations of our Board. If you sign your proxy card with no further instructions and you are a beneficial owner, then please see the response to the question immediately below for a description of how your shares will be voted.
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| frequently asked | ||||
| questions |
||||
What is the effect of broker non-votes?
Under the rules of the NYSE, if you are a beneficial owner, your broker, bank or other nominee only has discretion to vote on certain “routine” matters without your voting instructions. The proposal to ratify Deloitte & Touche LLP as our independent registered public accounting firm is considered a routine matter. However, the election of directors and the advisory vote on the Corporation’s executive compensation are not considered routine matters. Accordingly, your broker, bank or other nominee will not be permitted to vote your shares on these matters unless you provide proper voting instructions.
What is the voting requirement to approve each of the proposals?
The following table sets forth the voting requirements with respect to each proposal:
| Proposal |
Voting Requirement | |
|
1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
In an election where the number of director nominees does not exceed the number of directors to be elected, each director must be elected by a majority of the votes cast. In an election where the number of director nominees exceeds the number of directors to be elected, then director nominees shall be elected by a plurality of the votes cast. If any director fails to receive a majority of the votes cast in an uncontested election, our Corporate Governance Guidelines require that the director tender his or her resignation, which the Board may then accept or reject.
| |
|
2. An advisory vote on the Corporation’s executive compensation. |
To be approved, on an advisory basis, this proposal must be approved by a majority of the votes cast by the shareholders present in person or by proxy, meaning that the votes cast by the shareholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal.
| |
|
3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
To be approved, this proposal must be approved by a majority of the votes cast by the shareholders present in person or by proxy, meaning that the votes cast by the shareholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal.
|
Other matters that may properly come before the Annual Meeting may require more than a majority vote under our Second Amended and Restated Bylaws, our Amended and Restated Certificate of Incorporation, the laws of Delaware or other applicable laws.
Who will count the votes?
A representative of American Stock Transfer & Trust Company, LLC will act as the inspector of elections and count the votes.
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| frequently asked
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| questions | ||||
Where can I find the voting results?
We will announce the preliminary voting results at the Annual Meeting. We will also publish voting results in a current report on Form 8-K that we will file with the SEC within four business days following the meeting. If on the date of this filing the inspectors of election for the Annual Meeting have not certified the voting results as final, we will note in the filing that the results are preliminary and publish the final results in a subsequent Form 8-K filing within four business days after the final voting results are known.
Who will pay the costs of soliciting these proxies?
We will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this Proxy Statement, the proxy card and any additional information furnished to shareholders. Copies of solicitation materials will be furnished to banks, brokers and other nominees holding shares of voting stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of voting stock for their reasonable costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies may be supplemented by electronic means, mail, facsimile, telephone, or personal solicitation by our directors, officers or other employees. No additional compensation will be paid to our directors, officers or other employees for such services.
Are you “householding” for shareholders sharing the same address?
The SEC’s rules permit us to deliver a single copy of this Proxy Statement and our 2016 Annual Report to an address that two or more shareholders share. This method of delivery is referred to as “householding” and can significantly reduce our printing and mailing costs. It also reduces the volume of mail that you receive. We will deliver only one Proxy Statement and 2017 Annual Report to multiple registered shareholders sharing an address, unless we receive instructions to the contrary from one or more of the shareholders. We will still send each shareholder an individual proxy card.
If you did not receive an individual copy of this Proxy Statement or our 2017 Annual Report, we will send copies to you if you contact us at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277, (980) 345-1600, Attention: General Counsel and Corporate Secretary. If you and other residents at your address have been receiving multiple copies of this Proxy Statement or our 2017 Annual Report, and wish to receive only a single copy of these materials, you may contact your broker, bank or other nominee or contact us at the above address or telephone number.
What is the deadline under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, for shareholders to propose actions for consideration at the 2019 annual meeting of shareholders?
December 16, 2018 is the deadline for shareholders to submit proposals to be included in our proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Proposals by shareholders must comply with all requirements of applicable rules of the SEC, including Rule 14a-8, and be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with Rule 14a-8 and other applicable requirements.
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| frequently asked | ||||
| questions |
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What is the deadline under our Second Amended and Restated Bylaws for shareholders to nominate persons for election to the Board or propose other matters to be considered at our 2019 annual meeting of shareholders?
Shareholders who wish to nominate persons for election to our Board or propose other matters to be considered at our 2019 annual meeting of shareholders must provide us advance notice of the director nomination or shareholder proposal, as well as the information specified in our Second Amended and Restated Bylaws, no earlier than January 16, 2019 and no later than February 15, 2019. Shareholders are advised to review our Second Amended and Restated Bylaws, which contain the requirements for advance notice of director nominations and shareholder proposals. Notice of director nominations and shareholder proposals must be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. The requirements for advance notice of shareholder proposals under our Second Amended and Restated Bylaws do not apply to proposals properly submitted under Rule 14a-8 under the Exchange Act, as those shareholder proposals are governed by Rule 14a-8. We reserve the right to reject, rule out of order or take other appropriate action with respect to any director nomination or shareholder proposal that does not comply with our Second Amended and Restated Bylaws and other applicable requirements.
Whom should I call if I have any questions?
If you have any questions about the Annual Meeting or your ownership of Corporation voting stock, please contact our transfer agent at:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Telephone: (800) 937-5449
Website Address: www.amstock.com
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Incorporation by Reference
The Audit Committee Report and Compensation Committee Report shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. In addition, the website addresses contained in this Proxy Statement are intended to provide inactive, textual references only. The information on these websites is not part of this Proxy Statement.
Access to Reports and Other Information
We file or furnish our combined annual reports on Form 10-K, combined quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and other documents electronically with the SEC under the Exchange Act. You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain such reports from the SEC’s website at www.sec.gov.
Our website is www.esa.com. Our combined annual reports on Form 10-K, combined quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on the investor relations section of our website at www.aboutstay.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The Corporate Governance Guidelines, Code of Business Conduct and Ethics and Board committee charters are also available on the investor relations section of our website at www.aboutstay.com under the headings “Corporate Governance—Extended Stay America—Governance Documents.” We will provide, free of charge, a copy of any of our corporate documents listed above upon written request to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277.
List of Corporation Shareholders
A list of our shareholders as of April 5, 2018, the record date for the Annual Meeting, will be available for inspection at our corporate headquarters during ordinary business hours throughout the 10-day period prior to the Annual Meeting. The list of shareholders will also be available for such examination at the Annual Meeting.
Other Matters That May Come Before the Annual Meeting
We do not know of any other matters that will be considered at the Annual Meeting. However, if any other proper business should come before the meeting, the persons named in the proxy card will have discretionary authority to vote according to their best judgment to the extent permitted by applicable law.
| By Order of the Board of Directors, | ||||
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| John R. Dent | Charlotte, North Carolina | |||
| General Counsel and Corporate Secretary | April 16, 2018 |
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reconciliation of non-GAAP measures
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA
AND ADJUSTED EBITDA
For the Years Ended December 31, 2017 and 2016
(In thousands)
(Unaudited)
|
Years Ended December 31, |
||||||||
|
2017 |
2016 | |||||||
| Net income |
$ 172,188 | $ $163,352 | ||||||
| Interest expense, net |
129,772 | 164,537 | ||||||
| Income tax expense |
59,514 | 34,351 | ||||||
| Depreciation and amortization
|
229,216 | 221,309 | ||||||
| EBITDA |
590,690 | 583,549 | ||||||
| Equity-based compensation |
7,552 | 12,000 | ||||||
| Other non-operating expense (income) |
(399)(1) | (1,576 | )(2) | |||||
| Impairment of long-lived assets |
25,169 | 9,828 | ||||||
| Gain on sale of hotel properties, net |
(9,973) | – | ||||||
| Other expenses
|
9,866(3) | 11,857 | (4) | |||||
| Adjusted EBITDA
|
$ 622,905 | $ 615,658 | ||||||
| % growth |
1.2% | |||||||
| (1) | Includes foreign currency transaction gain of approximately $0.7 million and loss related to interest rate swap of approximately $0.3 million. |
| (2) | Includes foreign currency transaction gain of approximately $1.6 million. |
| (3) | Includes loss on disposal of assets of approximately $8.6 million, costs incurred in connection with 2017 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.2 million due to the revision of an estimate related to the sale of three hotel properties in 2017. |
| (4) | Includes loss on disposal of assets of approximately $10.7 million, costs incurred in connection with 2016 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of a portfolio of 53 hotel properties in 2015. |
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| reconciliation of non-GAAP measures |
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS TO FUNDS FROM OPERATIONS, ADJUSTED FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS PER DILUTED PAIRED SHARE
For the Years Ended December 31, 2017 and 2016
(In thousands, except per share and per Paired Share data)
(Unaudited)
|
Years Ended December 31, |
||||||||
|
2017 |
2016 | |||||||
| Net income per Extended Stay America, Inc. common share - diluted
|
$
|
0.41
|
|
$
|
0.35
|
| ||
| Net income attributable to Extended Stay America, Inc. common shareholders
|
$ | 78,847 | $ | 69,932 | ||||
| Noncontrolling interests attributable to Class B common shares of ESH REIT
|
93,325 | 93,404 | ||||||
| Real estate depreciation and amortization
|
224,559 | 216,950 | ||||||
| Impairment of long-lived assets
|
25,169 | 9,828 | ||||||
| Gain on sale of hotel properties, net
|
(9,973) | – | ||||||
| Tax effect of adjustments to net income attributable to Extended Stay America, Inc. common shareholders |
(56,883) | (50,728 | ) | |||||
| Funds from Operations
|
$ | 355,044 | $ | 339,386 | ||||
| Debt modification and extinguishment costs
|
2,351 | 26,233 | ||||||
| (Gain) loss on interest rate swap
|
314 | – | ||||||
| Tax effect of adjustments to Funds from Operations
|
(639) | (6,286 | ) | |||||
| Adjusted Funds from Operations
|
$ | 357,070 | $ | 359,333 | ||||
| Adjusted Funds from Operations per Paired Share- diluted
|
$ | 1.84 | $ | 1.79 | ||||
| Weighted average Paired Shares outstanding – diluted
|
193,670 | 200,736 | ||||||
|
|
2018 PROXY STATEMENT | 65 |
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| reconciliation of non-GAAP measures |
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS TO PAIRED SHARE INCOME, ADJUSTED PAIRED SHARE INCOME AND ADJUSTED PAIRED SHARE INCOME PER DILUTED PAIRED SHARE
For the Years Ended December 31, 2017 and 2016
(In thousands, except per share and per Paired Share data)
(Unaudited)
|
Years Ended December 31, |
||||||||
|
2017 |
2016 | |||||||
| Net income per Extended Stay America, Inc. common share - diluted
|
$ | 0.41 | $ | 0.35 | ||||
| Net income attributable to Extended Stay America, Inc. common shareholders
|
$ | 78,847 | $ | 69,932 | ||||
|
Noncontrolling interests attributable to Class B common shares of ESH REIT
|
93,325 | 93,404 | ||||||
| Paired Share Income
|
172,172 | 163,336 | ||||||
| Debt modification and extinguishment costs
|
2,351 | 26,233 | ||||||
| Other non-operating income
|
(399)(1) | (1,576 | )(2) | |||||
| Impairment of long-lived assets
|
25,169 | 9,828 | ||||||
| Gain on sale of hotel properties, net
|
(9,973) | – | ||||||
| Other expenses
|
9,866(3) | 11,857 | (4) | |||||
|
Tax effect of adjustments to Paired Share Income
|
(6,241) | (10,671 | ) | |||||
| Adjusted Paired Share Income
|
$ | 192,945 | $ | 199,007 | ||||
| Adjusted Paired Share Income per Paired Share – diluted
|
$ | 1.00 | $ | 0.99 | ||||
| Weighted average Paired Shares outstanding – diluted
|
193,670 | 200,736 | ||||||
| (1) | Includes foreign currency transaction gain of approximately $0.7 million and loss related to interest rate swap of approximately $0.3 million. |
| (2) | Includes foreign currency transaction gain of approximately $1.6 million. |
| (3) | Includes loss on disposal of assets of approximately $8.6 million, costs incurred in connection with 2017 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.2 million due to the revision of an estimate related to the sale of three hotel properties in 2017. |
| (4) | Includes loss on disposal of assets of approximately $10.7 million, costs incurred in connection with 2016 secondary offerings of approximately $1.1 million and transaction costs of approximately $0.1 million due to the revision of an estimate related to the sale of a portfolio of 53 hotel properties in 2015. |
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and your Board Chair
Dear Shareholder,
2017 was a milestone year for ESH Hospitality as we completed our transition from private equity ownership to a fully independent public company. We’re proud of everything we accomplished:
We evolved. With the exit of our private equity sponsors, we:
| ñ | Elected a fully-independent Board (other than our President and CEO) with committees composed solely of independent directors |
| ñ | Further diversified our Board, with two of our seven seats now held by women |
| ñ | Added Board members with further expertise in investor relations, hospitality industry investment banking, and real estate development and asset management |
We listened. In response to what you told us during last proxy season, we:
| ñ | Adopted different performance measures for our annual and long-term incentive plans, respectively |
| ñ | Adopted a clawback policy |
| ñ | Adopted a double-trigger change-in-control policy for equity grants under our long-term incentive plan |
| ñ | Used our CEO transition as an opportunity to implement a CEO pay package that is benchmarked to our peers, programmatically consistent with the compensation we pay to our other executives, and aligned with your interests |
We acted. We unilaterally:
| ñ | Adopted proxy access |
| ñ | Adopted a majority voting standard for uncontested director elections |
| ñ | Adopted annual say-on-pay voting |
| ñ | Recognized the financial expertise of our entire Audit Committee |
We served. As members of the hundreds of communities we serve through each of our properties throughout the country, we:
| ñ | Continued our partnership with the American Cancer Society to provide free and discounted rooms to cancer patients seeking treatment and to their families |
| ñ | Saved over 416,643,000 gallons of water, 30,894,000 kwh of electricity and 61,000 mmbtu of natural gas through our conservation efforts since 2012 |
| ñ | Continued our efforts to combat human trafficking |
With that backdrop, it is once again time for our Annual Meeting of Shareholders. This Proxy Statement tells you when and where the meeting will take place and how you can vote your shares. For each matter
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | i |
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| from your President and CEO and your Board Chair |
that we are asking you to vote upon, it gives you the background information you will need in order to make your decision.
Thank you for exercising your voting rights. And thank you for investing in Extended Stay America.
|
Jonathan S. Halkyard |
Douglas G. Geoga | |
| President and Chief Executive Officer | Chair of the Board of Directors |
|
ii | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
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annual meeting
ESH HOSPITALITY, INC.
11525 N. Community House Road, Suite 100
Charlotte, North Carolina 28277
(980) 345-1600
www.aboutstay.com
Notice Of Annual Meeting Of Shareholders
To Be Held On May 16, 2018
ESH Hospitality, Inc. will hold its 2018 Annual Meeting of Shareholders (the “Annual Meeting”) on Wednesday, May 16, 2018 at 8:30 a.m. (Eastern Daylight Time), at the Everett Building, Suite 100, 11525 N. Community House Road, Charlotte, North Carolina 28277, for the following purposes:
| ñ | To elect seven directors to hold office until the 2019 annual meeting of shareholders or until their successors are duly elected and qualified; |
| ñ | To approve, on an advisory basis, the compensation paid to our named executive officers; |
| ñ | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and |
| ñ | To transact any other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. |
Shareholders of record at the close of business on April 5, 2018 are entitled to receive notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.
This Notice and the enclosed Proxy Statement and Proxy Card are first being made available to shareholders on or about April 16, 2018.
By Order of the Board of Directors,
John R. Dent
General Counsel and Corporate Secretary
Charlotte, North Carolina
April 16, 2018
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | iii |
Table of Contents
summary
We are furnishing this Proxy Statement to you as part of a solicitation by the Board of Directors (the “Board”) of ESH Hospitality, Inc., a Delaware corporation, of proxies to be voted at our 2018 Annual Meeting of Shareholders and at any reconvened meeting after an adjournment or postponement of the meeting (the “Annual Meeting”). Unless the context otherwise requires, all references in this Proxy Statement to “ESH REIT,” “we,” “us,” and “our” refer to ESH Hospitality, Inc. and its subsidiaries. All references in this Proxy Statement to the “Company” refer to Extended Stay America, Inc. (the “Corporation”), ESH REIT and their subsidiaries considered as a single enterprise.
Our telephone number is (980) 345-1600, and our mailing address is 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. Our website is located at www.esa.com. The inclusion of our website address here and elsewhere in this Proxy Statement does not include or incorporate by reference the information on our website into this Proxy Statement. The information contained on, or that can be accessed through, our website is not a part of this Proxy Statement.
IMPORTANT INFORMATION REGARDING THE AVAILABILITY OF PROXY MATERIALS
As permitted by the rules of the Securities and Exchange Commission (“SEC”), we have elected to send you this full set of proxy materials, including a proxy card, and additionally to notify you of the availability of these proxy materials on the Internet. The Notice of Meeting, Proxy Statement, Proxy Card and 2017 Annual Report, which includes our combined annual report on Form 10-K for the year ended December 31, 2017, are available free of charge on the investor relations section of our website (www.aboutstay. com) or at www.proxyvote.com.
YOUR VOTE IS VERY IMPORTANT. PLEASE CAREFULLY READ THE ATTACHED PROXY STATEMENT. EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, EXECUTE, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. YOU MAY ALSO VOTE ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. IF YOU VOTE BY INTERNET OR TELEPHONE, YOU DO NOT NEED TO RETURN A WRITTEN PROXY CARD BY MAIL. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
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iv | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
| proxy summary |
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2018, 8:30 A.M. (EASTERN DAYLIGHT TIME)
Everett Building, Suite 100
11525 N. Community House Road
Charlotte, North Carolina 28277
Purposes:
| 1 | To elect seven directors to hold office until the 2019 annual meeting of shareholders or until their successors are duly elected and qualified | 2 | To approve, on an advisory basis, the compensation paid to our named executive officers | 3 | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018 | 4 | To transact any other business as may properly come before the Annual Meeting or any adjournments or postponements thereof |
| Proposal | How may I vote? |
What does the Board recommend? | ||||
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1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
You may: ñ (i) vote FOR the election of all nominees named herein;
ñ (ii) withhold authority to vote for all such nominees; or
ñ (iii) vote FOR the election of all such nominees other than any nominees with respect to whom the vote is specifically withheld by indicating in the space provided on the proxy.
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The Board recommends that you vote FOR all seven of the director nominees. | ||||
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2. An advisory vote on ESH REIT’s executive compensation. |
You may vote FOR or AGAINST the approval, on an advisory basis, of ESH REIT’s executive compensation, or you may indicate that you wish to ABSTAIN from voting on the matter.
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The Board recommends that you vote FOR the approval, on an advisory basis, of ESH REIT’s executive compensation.
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3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
You may vote FOR or AGAINST the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, or you may indicate that you wish to ABSTAIN from voting on the matter. |
The Board recommends that you vote FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | v |
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in review
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ESH Hospitality, Inc. is, by unit and room
count, the largest lodging real estate
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2017 was a transformative year for ESH REIT on the governance front. With the exit of our private equity sponsors, we were able to replace two of their representatives on our Board with fully-independent members (and appointed a third in 2018). Although we remain a “controlled” company under SEC and New York Stock Exchange (“NYSE”) rules (due to the controlling ownership of our parent, Extended Stay America, Inc.), we have voluntarily adopted governance principles applicable to non-controlled companies, including a fully-independent Board (other than one seat for our President and CEO) and Audit, Compensation, and Nominating and Corporate Governance Committees comprised solely of independent directors. All three Audit Committee members are “financial experts” as defined by SEC rules. Two of our seven Board seats are now held by women. Our new members bring important subject matter expertise in investor relations, the hospitality industry, investment banking, and real estate development and asset management.
Our efforts went beyond electing new Board members. We implemented important changes to our governance policies and procedures. We adopted a proxy access bylaw that balances the shareholder right to nominate directors on the Company ballot with three-year and three-percent holding requirements to protect that right from being misused. We amended our corporate governance guidelines to require a director nominee who receives less than a majority of votes cast in an |
uncontested election to tender his or her resignation to the Board (which the Board may then accept or reject). We also decided to ask for your “say-on-pay” advice annually instead of on the minimum three-year cycle required by SEC rules.
In response to the input we received during the 2017 proxy season and say-on-pay vote, we made important changes to our compensation program. We removed the Adjusted EBITDA-based performance measure used in our annual incentive plans from our long-term plan, instead using a performance measure based on total shareholder return that we believe better reflects your long-term priorities. We instituted a clawback policy requiring named executive officers (“NEOs”) to return excess compensation if a financial restatement indicates that the NEO received greater compensation than he or she actually earned. We adopted a “double-trigger” change-in-control policy, requiring that an NEO cease employment in connection with a change in control in order to be entitled to accelerated vesting under our incentive plans.
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| Finally, with Jonathan Halkyard’s appointment as President and CEO on January 1, 2018, we implemented a CEO pay package that does not involve above-market up-front stock grants, reflects benchmarking against the competitive market, is programmatically consistent with the compensation we pay to our other executives, and is aligned with your interests as shareholders. Although most of the compensation disclosures in this Proxy Statement
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| 2017 year in review |
| 30,894,000 | 416,643,000 | |||||
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| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | ix |
Table of Contents
contents
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x | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
election of directors
| 1 |
Proposal No. 1 The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified.
Recommendation The Board unanimously recommends that you vote “FOR” the election of all seven nominees listed on the Proxy Card. |
Our Board has nominated seven people for election as directors at the Annual Meeting. Each nominee is currently a director of ESH REIT. If elected, each nominee will hold office until the next annual meeting of shareholders, or until his or her successor has been duly elected and qualified, subject to a director’s earlier death, resignation or removal. Each nominee has consented to be named in this Proxy Statement and has agreed to serve if elected. If a nominee is unable to serve or for good cause will not serve if elected, the persons named as proxies may vote for a substitute nominee recommended by the Board and, unless you indicate otherwise on the proxy card, your shares will be voted in favor of the Board’s remaining nominees.
We believe each nominee meets the qualifications that have been established for service on our Board. As demonstrated in the following biographies, we believe that the nominees have professional experience in areas that are highly relevant to our strategy and operations, and bring skills and other attributes that make them outstanding candidates to serve on our Board.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 1 |
Table of Contents
| proposal 1: election of directors |
The following table summarizes information about our nominees as of April 5, 2018. Detailed biographies of each nominee follow.
| Name | Age | Director Since |
Audit Committee |
Compensation Committee |
Nominating |
Independent? | ||||||||||||||||
| Jonathan S. Halkyard |
53 | 2015 | ||||||||||||||||||||
| President and Chief |
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| Executive Officer |
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| Douglas G. Geoga |
62 | 2013 | Chair | Member | ✓ | |||||||||||||||||
| Board Chair |
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| Kapila K. Anand |
64 | 2016 | Chair | * | ✓ | |||||||||||||||||
| Director |
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| Neil T. Brown |
61 | 2017 | Member | Member | ✓ | |||||||||||||||||
| Director |
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| Bruce N. Haase |
57 | 2018 | ✓ | |||||||||||||||||||
| Director
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| Steven E. Kent |
55 | 2017 | Member | * | Member | ✓ | ||||||||||||||||
| Director |
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| Lisa Palmer |
50 | 2014 | Member | * | Chair | ✓ | ||||||||||||||||
| Director |
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*Audit Committee financial expert
Mr. Halkyard, Mr. Geoga, and Ms. Anand also sit on the Board of Directors of the Corporation. Under our Corporate Governance Guidelines (as defined below), service on our Board and the Board of the Corporation constitute a single directorship for purposes of overboarding calculations.
| 2 | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
| proposal 1: election of directors |
Our Board has affirmatively determined that each of our directors other than Mr. Halkyard is independent under the rules of the SEC and NYSE. Detailed information regarding each nominee as of April 5, 2018 is set forth below.
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Jonathan S. Halkyard President and CEO Extended Stay America, Inc. and ESH Hospitality, Inc.
Other directorships: Dave & Buster’s Entertainment, Inc.
Skills and expertise: Corporate finance, capital markets, operations, strategy, governance, lodging, gaming
Mr. Halkyard was appointed as President and Chief Executive Officer of the Corporation and of ESH REIT effective January 1, 2018. Mr. Halkyard previously served as Chief Financial Officer of the Corporation and ESH REIT from January 2015 to December 2017, as Chief Operating Officer of the Corporation from |
October 2013 to December 2014, and as the Interim Chief Financial Officer of the Corporation and ESH REIT from July 2014 to December 2014. From July 2012 to September 2013, Mr. Halkyard served as Executive Vice President and Chief Financial Officer of NV Energy, Inc., a holding company providing energy services and products in Nevada, and its wholly-owned subsidiaries, Nevada Power Company and Sierra Pacific Power Company. From March 1999 to May 2012, Mr. Halkyard held various positions with Caesars Entertainment Corporation (formerly known as Harrah’s Entertainment, Inc.), including Vice President (from 2002 to 2005), Treasurer (from 2003 to 2010), Senior Vice President (from 2005 to 2010), Executive Vice President (from 2010 to 2012) and Chief Financial Officer (from 2006 to 2012).
As our President and Chief Executive Officer with deep experience in adjacent hospitality industries, and as a former Chief Financial Officer of three public companies, Mr. Halkyard provides our Board with valuable insight regarding ESH REIT’s operations, management team, associates and culture. As a result of his day-to-day involvement in the operations of the business, and he performs a critical role in Board discussions regarding strategic planning and development for ESH REIT.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 3 |
Table of Contents
| proposal 1: election of directors
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Douglas G. Geoga President and CEO, Salt Creek Hospitality LLC Independent Board Chair Audit Committee Financial Expert
Other directorships: Kemper Corporation (Audit Committee)
Past directorships: Foundations Recovery Network, LLC (Executive Chair, 2012 - 2015) Carefree Communities Holdings, LLC (Board of Managers)
Skills and expertise: Lodging; operations; real estate development; finance; marketing; branding; corporate governance |
Mr. Geoga has served as Chair of the Board of ESH REIT since November 2013 and as Chair of the Board of Directors of the Corporation since July 2013. Mr. Geoga served as a non-voting member and the Non-Executive Chair of our predecessor entities, ESH Hospitality Holdings LLC (“Holdings”) and ESH Strategies Holdings LLC (“Strategies Holdings”), from October 2010 to November 2013. Mr. Geoga is President and Chief Executive Officer of Salt Creek Hospitality, LLC, a privately-held firm engaged in making investments in the hospitality industry and providing related advisory services. Mr. Geoga also serves as a consultant to Atlantica Investment Holdings Limited, which through affiliated companies is the second largest manager of hotels in Brazil. Since 2002, Mr. Geoga has served, and from November 2002 to December 2009, Mr. Geoga’s primary occupation was serving, as principal of Geoga Group, LLC, an investment and advisory consulting firm focused primarily on the hospitality industry. Until July 2006, Mr. Geoga’s primary occupation was serving as the President of Global Hyatt Corporation and as the President of Hyatt Corporation and the President of AIC Holding Co., the parent corporation of Hyatt International Corporation, then both privately-held subsidiaries of Global Hyatt Corporation which collectively operated the Hyatt chain of hotels throughout the world. In addition, from 2000 through 2005, Mr. Geoga served as President of Hospitality Investment Fund, LLC, a privately-held firm which was engaged in making investments in lodging and hospitality companies and projects.
Mr. Geoga’s history as President of Hyatt Corporation, a global leader in its industry, as well as his extensive experience in private business investment, brings to the Board the perspective of both an operating executive and one who is sophisticated in corporate investments and finance.
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4 | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
| proposal 1: election of directors |
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Kapila K. Anand Retired Partner, KPMG Independent Director Audit Committee Financial Expert
Other directorships: Women Corporate Directors Education and Development Foundation (Lead Director)
Non-profit boards: Rush University Medical Center, US Fund for UNICEF
Past directorships: KPMG LLP – Americas, KPMG LLP – U.S., Franciscan Ministries, KPMG Foundation (Chair), Chicago Network (Chair) |
Skills and expertise: Lodging, real estate, REITs, accounting, finance, risk management, corporate governance, internal controls over financial reporting
Ms. Anand has served as a director of the Corporation since July 2016 and as a director of ESH REIT since May 2017. Ms. Anand served as an audit and later advisory partner at KPMG LLP from 1989 until her retirement in March 2016. Ms. Anand joined KPMG LLP in 1979 and served in a variety of roles in addition to her role as a partner, including the National Partner-in-Charge, Public Policy Business Initiatives (from 2008 to 2013) and segment leader for the Travel, Leisure, and Hospitality industry and member of the Global Real Estate Steering Committee (each from 2013 to 2016).
Ms. Anand’s extensive experience serving a diverse group of real estate, gaming, private equity and hospitality clients on numerous audit and advisory projects brings to the Board a significant understanding of the financial, real estate and corporate governance issues and risks that affect ESH REIT.
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Neil T. Brown
CEO, ArchCo Residential LLC Independent Director
Skills and expertise: Real estate development; residential real estate; strategy; executive management; real estate investment
Mr. Brown is the Founder and Chief Executive Officer of ArchCo Residential LLC, a multifamily development company active in select markets across the United States. From September 2010 to February 2013, Mr. Brown served as Chief Development Officer of Archstone, a former developer of apartment communities in the United States. He also served on Archstone’s |
Executive Committee and on its Investment Committee. Prior to joining Archstone in 1996, he started the Florida regional office of JPI, a real estate development and investment management company, and served as its Regional Vice President and Regional Partner. Prior to JPI, Mr. Brown was a Partner with Trammell Crow Residential, a multifamily real estate developer. Mr. Brown served in the United States Army for four years attaining the rank of Captain.
As an experienced real estate executive with expertise in development and real estate investment, Mr. Brown brings critical knowledge of the processes and risks involved in real estate development as ESH REIT commences development of its ESA 2.0 projects.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 5 |
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| proposal 1: election of directors |
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Bruce N. Haase
Former CEO, WoodSpring Hotels LLC Independent Director
Other directorships: HomeWell Senior Care, Inc. (Chairman of the Board and Majority Shareholder)
Skills and expertise: Extended stay lodging; finance; lodging industry; franchising; branding; marketing; operations; executive management
From 2014 to 2016, Mr. Haase was the Chief Executive Officer of WoodSpring Hotels, LLC, a leading economy extended stay lodging brand. Mr. Haase led the design, launch and |
franchising of the WoodSpring Suites brand, including the conversion of properties from the company’s Value Place brand. Mr. Haase previously served in a series of executive positions with Choice Hotels International, Inc. including Executive Vice President, Global Brands, Marketing & Operations (from 2008 to 2012), Senior Vice President, Domestic Brand Operations & International Division (from 2007 to 2008), Senior Vice President, International Division (from 2000 to 2007), and Vice President, Finance & Treasurer (in 2000). Prior to joining Choice, Mr. Haase held a series of positions with The Ryland Group, Inc., Caterair International Corporation, Marriott Corporation, and Goldman, Sachs, & Company. Mr. Haase has been appointed to the Board since our last regular meeting, before the filing of this Proxy Statement.
As a chief executive officer with significant expertise leading franchise organizations through all stages of development, from start-up and market entry, to the turnaround of troubled brands, to aggressive growth of established franchise systems, Mr. Haase brings hands-on experience with the processes and risks involved in both the lodging industry and the extended stay segment.
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6 | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
| proposal 1: election of directors |
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Steven E. Kent
Founder, Global Hospitality Investment Research, Goldman, Sachs & Co. (Ret.) Independent Director Audit Committee Financial Expert
Skills and expertise: Public equity markets; competitive landscape; corporate finance; lodging and adjacent hospitality industries; mergers and acquisitions
Mr. Kent founded Brewster Bay Advisors, LLC in 2016, to act as a thought partner and advisor to board members, CEOs, CFOs, |
and heads of corporate development in regard to capital markets. In January 2017, Mr. Kent joined the faculty at the NYU School of Professional Studies, Jonathan M. Tisch Center for Hospitality and Tourism as Director of Industry Relations and as a Visiting Clinical Assistant Professor. He also joined the adjunct faculty at Boston University School of Hospitality. Prior to that, Mr. Kent served in a variety of positions with Goldman, Sachs & Co. Inc., including as founder of the firm’s Global Hospitality Investment Research Practice in 1993, Managing Director in the Leisure & Hospitality Group (from 2003 to 2016) and Vice President (from 1993 to 2003) and Associate (from 1990 to 1993) in the Emerging Growth & Hospitality Group. From 1987 to 1990, Mr. Kent served as a research analyst at Donaldson, Lufkin & Jenrette. Mr. Kent received a CFA in 1993.
Mr. Kent’s extensive investment banking experience and hospitality background brings to the Board a significant understanding of acquisition, strategic and operational issues and risks that affect ESH REIT.
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Lisa Palmer
President and CFO, Regency Centers Corporation Independent Director Audit Committee Financial Expert
Other directorships: Brooks Health System, United Way of Northeast Florida (Trustee), Florida Institute of CFOs (Advisory Board Member)
Skills and expertise: Real estate development; asset management; corporate finance and accounting; capital markets; retail; public board strategy; governance; executive management |
Prior to her appointment as President and CFO, Ms. Palmer served in a variety of positions with Regency Centers Corporation, including as Senior Manager of Investment Services (from 1996 to 1999), Vice President of Capital Markets (from 1999 to 2003), Senior Vice President of Capital Markets (from 2003 to 2013) and Executive Vice President and Chief Financial Officer (from 2013 to 2015). Prior to joining Regency, Ms. Palmer worked with Accenture, formerly Andersen Consulting Strategic Services, and as a financial analyst for General Electric. She is a member of the Urban Land Institute and of the International Council of Shopping Centers.
Ms. Palmer’s extensive financial and real estate background brings to the Board a significant understanding of financial and real estate issues and risks that affect ESH REIT.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 7 |
Table of Contents
| proposal 1: election of directors |
CORPORATE GOVERNANCE AND BOARD MATTERS
We believe that good corporate governance helps to ensure that ESH REIT is managed for the long-term benefit of our shareholders. We regularly review and consider our corporate governance policies and practices, the SEC’s corporate governance rules and regulations, and the corporate governance listing standards of the NYSE, the stock exchange on which our Paired Shares are traded.
The Board directs and oversees the management of the business and affairs of ESH REIT in a manner consistent with the best interests of ESH REIT and its shareholders. In this oversight role, the Board serves as the ultimate decision-making body of ESH REIT, except for those matters reserved to or shared with ESH REIT’s shareholders.
We have adopted the Extended Stay America, Inc. Corporate Governance Guidelines (as amended from time to time, the “Corporate Governance Guidelines”), which provide a framework for the governance of ESH REIT as a whole and describe the principles and practices that the Board follows in carrying out its responsibilities. The Corporate Governance Guidelines address, among other things:
| ñ | the composition, structure and policies of the Board and its committees; |
| ñ | director qualification standards; |
| ñ | expectations and responsibilities of directors; |
| ñ | management succession planning; |
| ñ | the evaluation of Board performance; |
| ñ | our director resignation policy; and |
| ñ | principles of Board compensation. |
The Corporate Governance Guidelines further provide that the Board, acting through the Nominating and Corporate Governance Committee (as described below), conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively. In addition, the Corporate Governance Guidelines provide that each committee conduct a self-evaluation and compare its performance to the requirements of its charter.
The Corporate Governance Guidelines are posted on the investor relations section of our website at www.aboutstay.com. The Corporate Governance Guidelines are reviewed by the Nominating and Corporate Governance Committee at least annually to ensure that they effectively promote the best interests of both ESH REIT and ESH REIT’s shareholders and that they comply with all applicable laws, regulations and NYSE requirements.
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8 | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
Table of Contents
| proposal 1: election of directors |
To further align the interests of our executive officers and our shareholders, the Board has adopted stock ownership guidelines under which certain members of our management team and independent directors, after an initial phase-in period, will generally be required to maintain vested equity holdings with a value at least equal to the following amounts:
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Position |
Minimum vested equity holding | |
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President and Chief Executive Officer
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5x annual base salary
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Chief Financial Officer
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4x annual base salary
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General Counsel and Executive Vice Presidents
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3x annual base salary
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Senior Vice Presidents
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1x annual base salary
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Independent Directors
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3x annual cash compensation
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ESH REIT’s Securities Trading Disclosure Policy prohibits all directors, officers and employees of ESH REIT from effecting hedging or similar monetization transactions with respect to Paired Shares.
Code of Business Conduct and Ethics
We have adopted the Extended Stay America, Inc. Code of Business Conduct and Ethics (the “Code of Business Conduct and Ethics”) that applies to all of our directors, officers and employees, including our principal executive officer (our President and CEO), principal financial officer (our CFO), principal accounting officer (our CFO) and persons performing similar functions. A copy of the Code of Business Conduct and Ethics is posted on the investor relations section of our website at www.aboutstay.com. If we amend or waive provisions of the Code of Business Conduct and Ethics with respect to such officers, we intend to disclose the amendment or waiver on our website.
Board of Directors and Director Independence
The Corporation owns a majority of our common stock. As a result, the Board has determined that we are a “controlled company” under the rules of the NYSE. Although we therefore qualify for exemptions from certain corporate governance requirements of the NYSE, we have chosen not to rely on those exemptions. Following our 2017 Annual Meeting of Shareholders, therefore, the Compensation Committee and the Nominating and Corporate Governance Committee were reconstituted solely with independent directors and the Board has had a majority of independent directors.
The Board consists of seven directors, all of whom have been nominated for re-election at the Annual Meeting. Our Amended and Restated Bylaws provide that directors are elected at the annual meeting of shareholders and each director is elected to serve until his or her successor is duly elected or until his or her earlier death, resignation or removal.
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| proposal 1: election of directors |
The Corporate Governance Guidelines define an “independent” director in accordance with the NYSE corporate governance rules for listed companies and require the Board to review and make an affirmative determination as to the independence of each director at least annually. The NYSE independence definition includes a series of objective tests, such as that the director is not an employee of ESH REIT and has not engaged in various types of business dealings with ESH REIT. Because it is not possible to anticipate or explicitly provide for all potential conflicts of interest that may affect independence, the Board is also responsible for determining affirmatively, as to each independent director, that no material relationships exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the Board broadly considers all relevant facts and circumstances, including information provided by the directors and ESH REIT with regard to each director’s business and personal activities as they may relate to ESH REIT and ESH REIT’s management. Our Board has affirmatively determined that each of our directors other than Mr. Halkyard is independent under the guidelines for director independence set forth in the Corporate Governance Guidelines and under all applicable rules of the SEC and the NYSE.
We do not have a policy as to whether the role of the Board Chair and the Chief Executive Officer should be separate or combined. The Board may select its Chair and Chief Executive Officer in any way it considers to be in the best interests of ESH REIT. At this time, we believe it is beneficial to separate the Chair and Chief Executive Officer in order to enhance the Chair’s oversight capability. Mr. Halkyard serves as our Chief Executive Officer and Mr. Geoga serves as Board Chair. The Board believes this leadership structure, which separates the Chair and Chief Executive Officer roles, is appropriate corporate governance for us at this time. In particular, the Board believes that this leadership structure clarifies the individual roles and responsibilities of Mr. Halkyard and Mr. Geoga and enhances accountability. The Board recognizes that there is no single, generally accepted approach to providing Board leadership and that the Board’s leadership structure may vary in the future as circumstances warrant. If the Board determines that it is in the best interests of our shareholders to combine the positions of Chair and Chief Executive Officer, the independent directors will designate a Lead Independent Director.
Board Oversight of Risk Management
The Board oversees, and provides direction with respect to, management’s day-to-day risk management activities and processes. While the full Board is responsible for risk oversight, the Board uses its committees, as appropriate, to monitor and address the risks that are within the scope of a particular committee’s expertise or charter. The Board and applicable committees periodically receive management reports on our business operations, financial results and strategic plans.
The Board delegates appropriate aspects of its oversight responsibility to the Audit Committee. The Audit
Committee assists the Board in fulfilling its risk oversight responsibilities by periodically reviewing, among other things, our financial statements, our auditing, accounting and financial functions and reporting processes, including our systems of internal controls for financial reporting, our compliance with legal and regulatory requirements, our enterprise risk management framework, and our cybersecurity risk. In particular, the Audit Committee periodically reviews and discusses with management, the internal audit function and the independent auditor, as applicable, our major financial risk exposure and the guidelines
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| proposal 1: election of directors |
and policies that management has established with respect to risk assessment and risk management. The Compensation Committee assists the Board with oversight of risks associated with our compensation policies and practices. The Nominating and Corporate Governance Committee assists the Board with oversight of risks associated with our governance. In each case, the Board or the applicable committee oversees the steps that management has taken to monitor and control such exposures.
The Chief Executive Officer’s membership on and collaboration with the Board allows him to gauge whether management is providing adequate information for the Board to understand the interrelationships of our various business and financial risks. He is available to the Board to address any questions regarding executive management’s ability to identify and mitigate risks and weigh them against potential rewards.
The Nominating and Corporate Governance Committee is responsible for reviewing the qualifications of potential director nominees and recommending to the Board those candidates to be nominated for election to the Board or candidates to fill vacancies on the Board. The Board then nominates candidates each year for election or re-election by shareholders or appoints new Board members to fill vacancies. In identifying prospective director candidates, the Committee may seek referrals from other members of the Board, management and third-party sources. The Committee may, but is not required to, retain a search firm in order to assist it in identifying candidates to serve as directors of the Board. In December 2016, the Nominating and Corporate Governance Committee retained Ferguson Partners Ltd., who provided these services throughout 2017. The Committee screens all potential candidates in the same manner regardless of the source of the recommendation.
The Nominating and Corporate Governance Committee does not maintain a fixed set of qualifications for director nominees other than the minimum individual qualifications described below. In considering candidates for the Board, the Committee considers all factors it deems appropriate, which may include (a) ensuring that the Board, as a whole, is appropriately diverse and consists of individuals with various and relevant career experience, relevant technical skills, relevant business or government acumen, industry knowledge and experience, financial expertise (including expertise that could qualify a director as an “audit committee financial expert”), local or community ties and (b) minimum individual qualifications, including strength of character, mature judgment, familiarity with ESH REIT’s business and industry, independence of thought and an ability to work collegially. The Committee also may consider the current size, composition and combined expertise of the Board and the extent to which a candidate would fill a present need on the Board. In particular, the Committee may consider the requirements that the members of the Board as a group maintain the requisite qualifications under the applicable NYSE listing standards for independence for the Board as a whole and for appointing individuals to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Although the Nominating and Corporate Governance Committee considers diversity of background and experiences, neither the Corporate Governance Guidelines nor the Nominating and Corporate Governance Committee Charter include a formal diversity policy.
The Board monitors the mix of specific experience, qualifications and skills of its directors in order to assure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of ESH REIT’s business and structure.
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| proposal 1: election of directors |
The Nominating and Corporate Governance Committee will consider candidates suggested by shareholders. Any shareholder who wishes to recommend a director candidate for consideration by the Committee may do so by submitting a recommendation in writing to the Chair of the Nominating and Corporate Governance Committee. See “Communications with the Board” below for how to communicate with the Chair of the Nominating and Corporate Governance Committee. Recommendations should include any information the shareholder believes would be helpful to the Nominating and Corporate Governance Committee in evaluating the candidate and must include information that would be required to be disclosed in a proxy statement soliciting proxies for the election of such candidate, including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as director if elected. If the Nominating and Corporate Governance Committee determines to nominate a shareholder-recommended candidate and recommends his or her election, then his or her name will be included on the proxy card for our next annual meeting in accordance with the procedures set forth in our Amended and Restated Bylaws. Shareholders may also directly nominate directors for election at ESH REIT’s annual shareholders meeting by following the provisions set forth in ESH REIT’s Amended and Restated Bylaws, whose qualifications the Nominating and Corporate Governance Committee will consider. See “Frequently Asked Questions—What is the deadline under our Amended and Restated Bylaws for shareholders to nominate persons for election to the Board or to propose other matters to be considered at our 2019 annual meeting of shareholders?” for additional information.
Proxy Access Director Nominations
In addition to advance notice procedures, our Amended and Restated Bylaws also include provisions permitting, subject to certain specified terms and conditions, shareholders who have maintained continuous qualifying ownership of at least 3% of outstanding common stock for at least three years to nominate a number of director candidates not to exceed the greater of two candidates or 20% of the number of directors then in office who will be included in our annual meeting proxy statement. Eligible shareholders who wish to nominate a proxy access candidate must follow the procedures described in our Amended and Restated Bylaws. Proxy access candidates and the shareholders nominators meeting the qualifications and requirements set forth in our Amended and Restated Bylaws will be included in ESH REIT’s proxy statement and ballot. To be timely, an eligible shareholder’s proxy access notice must be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277, no earlier than 150 days and no later than 120 days before the one-year anniversary of the date that we commenced mailing of our definitive proxy statement (as stated in such proxy statement) for the immediately preceding annual meeting, except as otherwise provided in the Amended and Restated Bylaws.
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Meetings of the Board and Committees
During 2017, the Board held four regular meetings and three telephonic special meetings, in addition to taking various actions by unanimous written consent. During 2017, each incumbent director attended at least 75% of the total meetings of the Board held during the period in which he or she was a director and the total number of meetings held by all of the committees of the Board on which he or she served during the period of his or her service on the committee. Directors are expected to attend all Board meetings and all meetings of the committee or committees of the Board of which they are a member. Attendance by telephone or videoconference is deemed attendance at a meeting. Additionally, all director nominees are encouraged to attend the annual shareholders meeting. All of the directors who were then serving on the Board attended the 2017 annual shareholders meeting.
Pursuant to our Corporate Governance Guidelines, our Board currently plans to hold at least four meetings each year, with additional meetings to occur (or action to be taken by unanimous written consent) at the discretion of the Board.
Executive Sessions of Non-Management Directors
Pursuant to our Corporate Governance Guidelines, in order to ensure free and open discussion and communication among the non-management directors of the Board, the non-management directors meet in executive session at most Board meetings with no members of management present. Mr. Geoga serves as the Chair of executive sessions.
Any interested parties wishing to communicate with, or otherwise make his or her concerns known directly to the Board or Chair of any of the Audit, Compensation and Nominating and Corporate Governance Committees, or to the independent directors, may do so by addressing such communications or concerns to the General Counsel and Corporate Secretary of ESH REIT, 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. The General Counsel and Corporate Secretary or Chair will forward such communications to the appropriate party as soon as practicable. Such communications may be done confidentially or anonymously.
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The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee is composed solely of independent directors. Each committee operates under its own written charter approved by the Board, copies of which are available on the investor relations section of our website at www.aboutstay.com.
The following table shows the current membership of each committee of our Board, and the number of meetings held by each committee during 2017:
| Director
|
Audit Committee
|
Compensation
|
Nominating and
| |||
|
Douglas G. Geoga*
|
Chair
|
Member
| ||||
|
Kapila K. Anand
|
Chair
|
|||||
|
Neil T. Brown
|
Member
|
Member
| ||||
|
Steven E. Kent
|
Member
|
Member
|
||||
|
Lisa Palmer
|
Member
|
Chair
| ||||
|
Number of 2017 Meetings†
|
7
|
4
|
4
|
| * | Mr. Geoga has served as the Board Chair since November 12, 2013. |
| † | During 2017, each committee also took actions by unanimous written consent. |
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The Audit Committee currently consists of Ms. Anand, Mr. Kent, and Ms. Palmer. Ms. Anand is the Chair of the Audit Committee. The Board has determined that each Audit Committee member qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and as “independent” as defined in Rule 10A-3 of the Exchange Act and the NYSE listing standards.
The principal duties and responsibilities of the Audit Committee are set forth in its written charter, and include, among other things, to oversee and monitor:
| ñ | our financial reporting process and internal control system; |
| ñ | the integrity of our financial statements; |
| ñ | the independence, qualifications and performance of our independent auditor; |
| ñ | the performance of our internal audit function; and |
| ñ | our compliance with legal, ethical and regulatory matters. |
The Audit Committee also reviews and approves certain related party transactions, as described under “Certain Relationships and Related Party Transactions—Related Party Transaction Policy.” Additional information about the responsibilities of the Audit Committee and its activities during 2017 are also described in the Audit Committee Report contained in this Proxy Statement.
The Compensation Committee currently consists of Mr. Geoga, Mr. Brown, and Mr. Kent. Mr. Geoga is the Chair of the Compensation Committee. The Board has determined that each Compensation Committee member is “independent” as defined by the NYSE listing standards.
The principal duties and responsibilities of the Compensation Committee are set forth in its written charter, and include, among other things:
| ñ | to establish the general compensation philosophy and policy consistent with our strategic goals and shareholder interests; |
| ñ | to review, make recommendations to the Board, or approve where applicable, the compensation of our executives, including our Chief Executive Officer, including an evaluation of the level of compensation, use of equity-based compensation, setting of performance goals and objectives used to determine incentive compensation, and an evaluation of the executive’s performance in light of those established goals and objectives; |
| ñ | to review and approve executive employment agreements, change in control agreements and other benefits paid to our executives and to administer our equity-based compensation, incentive and benefit plans for all plan participants; |
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| ñ | to periodically review and make recommendations to the Board, or approve where applicable, any substantive changes to the director and executive incentive, compensation and benefit plans of ESH REIT; |
| ñ | to review and make recommendations to the Board with respect to compensation disclosures and any shareholder proposals regarding executive compensation; and |
| ñ | to provide regular reports to the Board and take such other actions as are necessary and consistent with governing law and ESH REIT’s organizational documents. |
The Compensation Committee has the authority to and does engage the services of independent advisors, experts and others to assist it from time to time. In accordance with this authority, the Compensation Committee has engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent compensation consultant, as described under “Executive Compensation—Compensation Discussion and Analysis—Our Decision Making Process.”
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists of Ms. Palmer, Mr. Geoga, and Mr. Brown. Ms. Palmer is the Chair of the Nominating and Corporate Governance Committee. The Board has determined that each Nominating and Corporate Governance Committee member is “independent” as defined by the NYSE listing standards.
The principal duties and responsibilities of the Nominating and Corporate Governance Committee are set forth in its written charter, and include, among other things:
| ñ | to establish criteria for Board and committee membership and recommend to the Board proposed nominees for election to the Board and for membership on committees of the Board; |
| ñ | to make recommendations regarding proposals submitted by our shareholders; |
| ñ | to make recommendations to the Board regarding Board governance matters and practices; and |
| ñ | to provide oversight regarding management succession planning. |
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has at any time been one of our executive officers or employees. During 2017, none of our executive officers served as a member of the board of directors or compensation committee of an entity that has an executive officer serving as a member of the Compensation Committee, and none of our executive officers served as a member of the compensation committee of an entity that has an executive officer serving as a director on the Board.
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At the Board’s regular meeting in May 2017, in anticipation of the departure of the last sponsor representatives from the Board, the Compensation Committee adopted an amended director compensation program that provides the following:
| ñ | Except as provided below, each independent director receives an annual cash retainer of $90,000 and an annual equity retainer with a value at grant of $100,000. Equity retainers are granted in restricted stock units that vest one year from the day of the grant. |
| ñ | The Chairs of the Board and of each Committee receive an additional cash retainer in the following amounts: |
|
Chair
|
Additional cash retainer
|
|||
|
Board
|
|
$ 25,000
|
| |
|
Audit Committee
|
|
$ 15,000
|
| |
|
Compensation Committee
|
|
$ 10,000
|
| |
|
Nominating and Corporate Governance Committee
|
|
$ 7,500
|
| |
The Board Chair does not receive the additional cash retainer for serving as a Committee Chair. Mr. Geoga therefore does not receive an additional cash retainer for serving as the Chair of the Compensation Committee.
| ñ | Mr. Geoga and Ms. Anand also serve on the Board of Directors of the Corporation. Although the Boards of Directors of ESH REIT and of the Corporation represent different interests, there is substantial overlap in the materials upon which the members of each Board of Directors rely in preparing for meetings and otherwise serving as directors. Recognizing that the incremental work required to serve on the second board is less than twice the effort of serving on a single board, Mr. Geoga and Ms. Anand each receive a total annual cash retainer of $120,000 and an annual equity retainer with a value at grant of $150,000 for their service on both Boards, the cost of which is split evenly between ESH REIT and the Corporation. The compensation paid to Mr. Geoga and Ms. Anand for serving as Committee Chairs is not affected. |
The Compensation Committee subsequently adopted an amendment to the director compensation program permitting each director to receive the value of his or her cash retainers in Paired Shares.
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| proposal 1: election of directors |
The table below sets forth the portion of the compensation paid to the members of the Board that is attributable to services performed during the fiscal year ended December 31, 2017.
| Director | Fees earned or paid in cash |
Stock Awards(1) |
All Other Compensation(2) |
Total | ||||||||||||
|
Douglas G. Geoga
|
$ | 63,750 | $ | 74,648 | (3) | $ | 21,250 | $ | 159,648 | |||||||
|
Kapila K. Anand
|
$ | 46,875 | $ | 74,648 | (4) | $ | — | $ | 121,523 | |||||||
|
Neil T. Brown
|
$ | 33,750 | $ | 99,530 | (5) | $ | 22,500 | $ | 155,780 | |||||||
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Steven E. Kent
|
$ | 56,250 | $ | 99,530 | (6) | $ | — | $ | 155,780 | |||||||
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Lisa Palmer
|
$ | 87,750 | $ | 99,530 | (7) | $ | — | $ | 187,280 | |||||||
|
Gerardo I. Lopez(8)
|
$ | — | $ | $ | $ | — | $ | — | ||||||||
| 1) | The amounts included in the “Stock Awards” column represent the grant date fair value of the restricted stock units granted, computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 13—Equity-Based Compensation to the audited consolidated and combined financial statements of ESH Hospitality, Inc. included in the combined annual report on Form 10-K for the fiscal year ended December 31, 2017 of the Corporation and ESH REIT. Vested restricted stock units will be settled in Paired Shares on September 15th following the applicable vesting date. |
| (2) | The amounts included in the “All Other Compensation” column represent shares issues in lieu of cash at the election of each Board member for the fourth quarter of 2017. |
| (3) | On May 17, 2017, Mr. Geoga was granted 4,251 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (4) | On May 17, 2017, Ms. Anand was granted 4,251 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (5) | On May 17, 2017, Mr. Brown was granted 5,668 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (6) | On May 17, 2017, Mr. Kent was granted 5,668 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (7) | On May 17, 2017, Ms. Palmer was granted 5,668 restricted stock units, which are scheduled to vest on May 17, 2018. |
| (8) | Mr. Lopez did not receive any compensation for services rendered during 2017 as a director of ESH REIT. Mr. Lopez’s compensation for services rendered as President and Chief Executive Officer of ESH REIT is reported in the Summary Compensation Table. |
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Table of Contents
say-on-pay
| 2 | Proposal No. 2 An advisory vote on ESH REIT’s executive compensation.
| |
| Recommendation The Board unanimously recommends that you vote “FOR” Proposal No. 2 to approve, on an advisory basis, the compensation paid to our NEOs as disclosed pursuant to the SEC’s compensation disclosure rules. |
Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires ESH REIT to request shareholder approval, on an advisory basis, of the compensation paid to our named executive officers (“NEOs”) as disclosed pursuant to the SEC’s compensation disclosure rules. This proposal is commonly known as a “say-on-pay” proposal.
As part of the Compensation Committee’s efforts to ensure that the interests of our NEOs are aligned with those of our shareholders, the Compensation Committee considers the results of ESH REIT’s prior shareholder advisory votes on executive compensation. Our most recent say-on-pay vote was held in 2017 and yielded an approval by 94.9% of the votes cast. Although this constituted a substantial majority of votes cast, after considering the effect of votes from the Corporation’s Class A shares the Committee considered the results to reflect substantial shareholder concern with ESH REIT’s then-current executive compensation program. In response to the vote and comments from shareholders, the Committee has since taken three significant actions:
| ñ | First, in connection with the appointment of Mr. Halkyard as our new President and CEO effective January 1, 2018, the Committee adopted a compensation structure that did not involve above-market upfront grants of restricted stock units. Other than a modest one-time grant of restricted stock units, Mr. Halkyard’s compensation mirrors the structure used for our other NEO’s: a base salary, performance based bonus, and long-term incentives based on both time and performance measures. |
| ñ | Second, the Committee modified our long-term incentive plan to eliminate the Adjusted EBITDA-based performance measure that is also used in our short-term annual bonus plan. Beginning in 2018, awards under the long-term plan now use equal amounts of time-based units and performance-based units based on relative total shareholder return. |
| ñ | Third, in order to get immediate feedback from shareholders on the Committee’s actions, we adopted annual say-on-pay voting instead of following the minimum three-year cycle required by the SEC, which is why say-on-pay is back on the ballot this year. |
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Table of Contents
| proposal 2: say-on-pay |
The Compensation Discussion and Analysis (“CD&A”) beginning on page 22 of this Proxy Statement sets forth detailed information about our executive compensation program. In reviewing the CD&A, we encourage you to consider the following:
| ñ | Much of the content of the CD&A is dictated by SEC rules, which focus the disclosures on the prior fiscal year. Because Mr. Halkyard was not appointed as President and CEO until January 1, 2018, the required disclosures do not highlight the modifications that we made to our CEO compensation this year in connection with Mr. Halkyard’s appointment. We have included that information where we believe it is useful for you to evaluate our current compensation practices. |
| ñ | A significant portion of the compensation granted to Mr. Lopez (our former President and CEO) was issued in the form of performance-based stock units when he was hired in August 2015. With his departure at the end of 2017, 500,000 of these units were cancelled, while the vesting of 33,334 time-based units was accelerated. We ask that you consider the difference between the potential compensation that he was granted at his hire date and the portion of that compensation that was actually realized. |
Our executive compensation program is designed to (i) attract, engage and retain a high quality workforce that helps achieve immediate and longer term success and (ii) motivate and inspire associate behavior that fosters a high performing culture and is focused on delivering business objectives. We believe that our executive compensation program, particularly as restructured with Mr. Halkyard’s appointment as President and CEO, accomplishes those ends while remaining strongly aligned with the long-term interests of our shareholders.
As an advisory vote, this proposal is not binding upon ESH REIT. However, our Compensation Committee will continue to use shareholder feedback, both as expressed by your say-on-pay vote and as provided directly to us, as an important consideration in making future NEO compensation decisions.
The Board therefore recommends that shareholders vote in favor of the following resolution:
RESOLVED, that the shareholders of ESH REIT approve, on an advisory basis, the executive compensation of ESH REIT’s NEOs as disclosed within this Proxy Statement pursuant to the compensation disclosure rules of the Exchange Act (Item 402 of Regulation S-K), which disclosure includes the Compensation Discussion and Analysis, the compensation tables and any related narrative discussion contained in this Proxy Statement.
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| proposal 2: say-on-pay |
The following table sets forth, as of April 5, 2018, the name and age of our executive officers and the positions and offices they currently hold:
| Name
|
Age
|
Position
| ||
|
Jonathan S. Halkyard
|
53 | President and Chief Executive Officer | ||
|
David Clarkson
|
46 | Interim Chief Financial Officer | ||
|
John R. Dent
|
54 | General Counsel and Corporate Secretary | ||
|
James G. Alderman Jr.
|
53 | Chief Asset Merchant | ||
|
Howard J. Weissman
|
49 | Corporate Controller and Chief Accounting Officer |
Set forth below are descriptions of the backgrounds of each of our executive officers who are not directors, as of April 5, 2018:
David Clarkson has served as Interim Chief Financial Officer of the Corporation and ESH REIT since January 2018. Since May 2013, Mr. Clarkson has served as Treasurer of the Corporation as well as Vice President of Financial Planning & Analysis since September 2015. Prior to joining the Corporation in 2011, Mr. Clarkson was Vice President of Finance and Development for The Clarkson Group, a real estate company focused primarily on limited service hotel development. Between 1996 and 2004, Mr. Clarkson held various positions in finance and revenue management for the Corporation’s predecessor. Mr. Clarkson is a CFA charterholder.
John R. Dent has served as General Counsel and Corporate Secretary of the Corporation and ESH REIT since January 2015. From 2000 to 2014, Mr. Dent held various positions at Hilton Worldwide, Inc. (formerly Hilton Hotels Corporation), including Senior Vice President and Deputy General Counsel (from March 2012 to August 2014), Senior Vice President and Assistant General Counsel, Development (from 2009 to 2012), Acting General Counsel (from 2010 to 2011), Vice President and Senior Counsel (from 2001 to 2009), and Senior Counsel (from 2000 to 2001). From 1990 to 2000, Mr. Dent was in private practice.
James G. Alderman Jr. has served as Chief Asset Merchant of the Corporation and ESH REIT since November 2016. He previously served as Chief Development Officer of Kimpton Hotels & Restaurants from July 2013 to November 2016. From March 2012 to July 2013, Mr. Alderman was principal of Alderman Hospitality, a hospitality real estate consulting firm. Prior to that, Mr. Alderman held various leadership positions with other lodging companies such as Wyndham Worldwide and Starwood Hotels & Resorts.
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| proposal 2: say-on-pay |
Howard J. Weissman has served as Chief Accounting Officer of the Corporation and ESH REIT and Corporate Controller of ESH REIT since May 2015 and Corporate Controller of the Corporation since November 2013. He previously served as Corporate Controller at HVM LLC from December 2011 to November 2013. From May 2009 to December 2011, Mr. Weissman worked at Campus Crest Communities, Inc., serving as Senior Vice President and Corporate Controller. From July 2007 through May 2009, Mr. Weissman was Controller and Chief Accounting Officer of EOP Operating Limited Partnership, LP, the private company successor to Equity Office Properties Trust, a commercial office real estate company owned by The Blackstone Group. From May 2003 through May 2007, Mr. Weissman served in a variety of positions with CarrAmerica Realty Corporation, a commercial office real estate company, including as Assistant Controller, Vice President of Shared Services and Controller.
Compensation Discussion and Analysis (“CD&A”)
This CD&A explains our executive compensation program for our NEOs listed below. The CD&A also describes the process followed by the Compensation Committee for making pay decisions, as well as its rationale for specific decisions related to 2017 compensation.
|
2017 CD&A At-A-Glance
|
||||
|
This year’s CD&A again reviews the objectives and elements of ESH REIT’s executive compensation program and discusses the 2017 compensation earned by our NEOs. It also explains the actions the Compensation Committee took based on its ongoing commitment to reflect shareholder feedback and to reward our senior leadership team for delivering the robust growth and returns that our shareholders expect. Since our last annual meeting, we:
| ||||
|
Continued our robust shareholder engagement, with a key focus on executive compensation matters
|
|
Contacted shareholders representing approximately 60% of our outstanding common stock
| ||
| Successfully executed on the transition of our CEO |
|
Seamlessly transitioned Mr. Halkyard into the role of President and CEO effective January 1, 2018
| ||
| Implemented shareholder-friendly policies |
|
Added double-trigger change-in-control vesting and clawback provisions to all 2018 equity grants
| ||
| Improved the structure of our incentive plans |
|
Beginning in 2018, eliminated performance measures that were duplicated in our incentive plans and increased the weighting of relative Total Shareholder Return (rTSR) in our long-term plan
| ||
2017 saw important achievements for the Company and our shareholders, with the Company returning over $220 million to our shareholders through dividends and share repurchases and improving overall financial performance. With these results, based on the terms of our annual incentive plan, the NEOs achieved an 87.9% annual incentive level payout. More information about these actions, our 2017 business achievements, and the resulting compensation actions taken by the Compensation Committee are summarized in the following narrative.
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| proposal 2: say-on-pay |
| In 2017, our NEOs were:
|
||
|
Name
|
Title
| |
|
Gerardo I. Lopez(1)
|
President and Chief Executive Officer | |
|
Jonathan S. Halkyard(2)
|
Chief Financial Officer | |
|
John R. Dent
|
General Counsel and Corporate Secretary | |
|
James G. Alderman Jr.
|
Chief Asset Merchant | |
|
Howard J. Weissman
|
Corporate Controller and Chief Accounting Officer |
| (1) | On December 18, 2017, the Board of Directors accepted the voluntary resignation of Mr. Lopez from his position as President and Chief Executive Officer of ESH REIT, effective January 1, 2018. |
| (2) | On December 18, 2017, the Board of Directors appointed Jonathan S. Halkyard as President and Chief Executive Officer of ESH REIT, effective January 1, 2018. |
2017 Say-On-Pay and Shareholder Outreach
As part of the Compensation Committee’s efforts to ensure that the interests of our NEOs are aligned with those of our shareholders, the Compensation Committee considers the results of ESH REIT’s prior shareholder advisory votes on executive compensation. After last year’s say-on-pay vote, we reached out to shareholders to understand their concerns.
As noted previously, seeking feedback from our shareholders on a regular basis is a critical part of our approach to managing our executive compensation program. See “2017 Year in Review – Shareholder Outreach and Engagement Highlights.” This cadence of shareholder engagement is in addition to the input we receive through say-on-pay voting and targeted outreach efforts. In 2017, we specifically engaged in a robust process to solicit feedback to better understand our shareholders’ concerns regarding executive compensation. We were able to meet in person, by email (limited and at their request) or by phone with 20 institutional shareholders representing approximately 60% of our outstanding common stock, to discuss our executive compensation structure and their anticipated say-on-pay votes.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 23 |
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| proposal 2: say-on-pay |
The Committee, with assistance from management and its independent compensation consultant, considered the opinions heard during these conversations. While shareholders had varying perspectives, a few common themes emerged. The following chart summarizes what we heard and how we responded:
| What we heard |
How we responded | |||
|
Concerns about the level of CEO pay, which included the value of new-hire equity awards that were granted to Mr. Lopez when he joined the Company in 2015. |
|
The majority of Mr. Lopez’s new-hire equity awards were performance-based and, consistent with the plan’s design, unvested portions were forfeited upon his resignation. The Committee did not approve any additional equity grants to Mr. Lopez in 2017. We targeted the compensation of our new CEO, Mr. Halkyard, near the median of our peer group (see page 26) and used the same structure for his compensation package as for other senior executives.
| ||
|
Duplication of performance metrics in the annual and long term incentive plans— both plans use Adjusted EBITDA. |
|
We will continue to use Adjusted EBITDA in the annual incentive plan, to maintain a focus on operating performance. To recognize that asset allocation has a significant impact on shareholder return in capital-intensive real estate businesses such as ours, however, the Committee decided to base our long-term incentive plan entirely on rTSR, beginning with the grants of performance-based restricted stock units made in 2018.
| ||
|
Provide more thorough disclosure of shareholder engagement efforts. |
|
With this Proxy Statement, we have added a more detailed description of our shareholder interactions and how we incorporated your feedback in the development and adoption of our new executive compensation program.
| ||
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Concern over single-trigger vesting and the lack of a clawback policy. |
|
All grants beginning in 2018 are subject to double-trigger vesting upon a change in control. In addition, the Company implemented a new clawback policy applicable to all NEOs.
| ||
CEO Transition and Compensation
On January 1, 2018, we transitioned our CEO position from Mr. Lopez to Mr. Halkyard. Due to a combination of Mr. Lopez’s resignation and the incentive-driven structure of his compensation package, Mr. Lopez’s realized compensation was significantly less than the amount reported in the Summary Compensation Table in the year of the grant.
When Mr. Lopez was hired in August 2015 with the approval of our then-controlling sponsors, his compensation package was designed both to compensate him for equity being forfeited from his then-current employer, as well as to provide substantial upside in the form of aggressive performance metrics that would have value only in the event of a substantial appreciation in the price of our Paired Shares. As a result, the significant majority of his total direct compensation (base salary, annual and long-term incentives) was at risk in the form of performance-based restricted stock units, tied to both absolute and relative financial performance measures. Much of Mr. Lopez’s long-term incentive grants were made, or committed to be made in early 2016, at that time. Mr. Lopez received no long-term incentive grants in 2017.
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ESH HOSPITALITY, INC. |
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Based on the Company’s performance over his tenure, and consistent with the design of the awards, the equity awards held by Mr. Lopez had substantially less value at the time of his voluntary resignation than had been reported under applicable accounting and disclosure requirements in our prior Proxy Statements. The chart below illustrates Mr. Lopez’s total potential pay (as reflected in the Salary, Bonus, Stock Awards, and Non-Equity Incentive Plan Compensation columns of in the Summary Compensation Table) over his three-year tenure, including annual incentives and equity grants at target, versus his actual realized pay:
Mr. Lopez received equity award grants in 2015 and 2016. These grants were primarily performance based (85% in 2015; 70% in 2016), vesting only if pre-determined absolute (for the 2015 award) or relative (for the 2016 award) TSR and Adjusted EBITDA performance goals were achieved. Based on actual performance, none of the performance-based awards granted in 2015 were earned, and only a portion of the performance-based awards granted in 2016 were earned. The remaining portion of the equity awards were time-based and, other than the acceleration of one grant that would otherwise have vested in August 2018, vested in accordance with the plan’s provisions before Mr. Lopez left the Company. Mr. Lopez did not receive any equity grants in 2017.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 25 |
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Mr. Halkyard was appointed as our new President and CEO effective January 1, 2018. Mr. Halkyard’s target direct compensation was set by reference to our peer group, which we describe on page 29. Mr. Halkyard’s annual base salary for 2018 is $900,000, his target annual bonus opportunity is 100% of his annual base salary, and the value of equity awarded is $3,200,000. Mr. Halkyard’s target direct compensation, as compared to the target direct compensation for CEOs of our peer companies, is as follows (amounts shown in thousands):
Compensation Practices & Policies
We believe our compensation practices and policies promote sound compensation governance and are in the best interests of our shareholders and executives:
|
We do have: |
We don’t have: | |||||
|
|
Heavy emphasis on variable compensation |
|
Significant perquisites | |||
|
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Performance-weighted long-term incentive awards |
|
“Single-trigger” termination payments upon a change in control | |||
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|
Rigorous stock ownership guidelines |
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Hedging of Corporation stock | |||
|
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Clawback provisions |
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Pledging of Corporation stock | |||
|
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Independent compensation consultant |
|
Multi-year guarantees for salary increases | |||
|
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Regular risk assessments |
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Tax gross-ups on termination payments following a change in control | |||
|
|
“Double-trigger” termination payments upon a change in control |
|
Repricing or backdating stock options without shareholder approval | |||
|
|
Annual reviews of share utilization |
|
Executive agreements | |||
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26 | 2018 PROXY STATEMENT |
ESH HOSPITALITY, INC. |
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Executive Compensation Program Guidelines
The philosophy underlying our executive compensation program is to employ the best leaders in our industry to ensure we execute on our business goals, promote both short-and long-term profitable growth of ESH REIT, and create long-term shareholder value. To this end, our program is grounded by the following guiding principles:
| Pay for Performance |
A significant portion of an NEO’s total compensation should be variable and dependent upon the attainment of certain specific and measurable annual and long- term business performance objectives.
| |
| Shareholder Alignment |
NEOs should be compensated through pay elements (base salaries, annual- and long-term equity incentives) designed to create long-term value for our shareholders, as well as foster a culture of ownership.
| |
| Attraction and Retention |
The executive compensation program should enable ESH REIT to attract highly-talented people with exceptional leadership capabilities and retain high-caliber talent.
|
Our compensation philosophy is supported by the following principal compensation elements:
| Base salary |
Base salary provides a predictable level of current income to provide the NEO with a certain amount of stability and assists ESH REIT in attracting and retaining qualified executives.
| |
|
Performance-based annual incentive opportunity
|
The annual incentive program is designed to reward the NEOs for achieving critical, short-term financial performance goals, as well as achieving individual objectives. | |
| Long-term equity-based awards |
Grants of restricted stock units under the Amended and Restated ESH Hospitality Long-Term Incentive Plan (the “Equity Incentive Plan”) provide incentives for NEOs to execute on longer-term financial/strategic goals that drive shareholder value creation and support ESH REIT’s retention strategy.
| |
| Participation in general employee benefit programs |
A standard package of employee benefits is maintained by the Corporation’s subsidiary, ESA Management LLC (together with its subsidiaries, “ESA Management”) to provide employees, including the NEOs, with retirement savings opportunities, medical coverage and other reasonable welfare benefits. |
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 27 |
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The Role of the Compensation Committee
The Compensation Committee oversees the executive compensation program for our NEOs. The Committee is comprised entirely of independent non-employee members of the Board. The Committee works closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Committee’s authority and responsibilities are specified in the Committee’s charter, which may be accessed at the investor relations section of our website, www.aboutstay.com.
The Committee makes all final compensation and equity award decisions regarding our NEOs. The Committee, together with management, also reviews our compensation practices and policies with regard to risk management and has determined that there are no policies or practices that are likely to lead to excessive risk-taking or have a material adverse effect on ESH REIT.
While only Committee members make decisions regarding executive compensation, at the request of the Committee, members of our senior management team typically attend meetings during which executive compensation, company and individual performance, and competitive compensation levels and practices are discussed and evaluated. The Committee also receives recommendations from the CEO regarding the compensation of our other executive officers, including the other NEOs. The CEO does not participate in the deliberations of the Committee regarding his own compensation.
The Role of the Independent Consultant
Pursuant to authority granted to it under its charter, the Committee engages Pearl Meyer as its independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pearl Meyer reports directly to the Committee and does not provide any additional services to management. The Committee has conducted an independence assessment of Pearl Meyer in accordance with SEC rules and has determined that work performed by Pearl Meyer does not create a conflict of interest.
As part of our compensation philosophy, our executive compensation program is designed to attract, motivate and retain our NEOs in an increasingly competitive and complex talent market. As such, the Committee evaluates industry-specific and general market compensation practices and trends to ensure that our program remains appropriately competitive.
For all of the NEOs, cash compensation amounts have been set to provide a certain degree of financial security at levels that are believed to be competitive for similar positions in the marketplace in which we compete for management talent. In addition, the annual incentive program has been designed to meaningfully reward strong annual performance, in order to motivate participants to strive for ESH REIT’s continued growth and profitability. In 2017, the compensation program continued to evolve to support the Corporation’s and ESH REIT’s long-range business goals and growth strategies.
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The Committee periodically considers publicly-available data for informational purposes when making its compensation-related decisions. However, market data is not the sole determinant of ESH REIT’s practices or executive compensation levels. When determining base salaries and incentive opportunities for the NEOs, the Committee also considers the performance of ESH REIT and the individual, the nature of an individual’s role within ESH REIT, as well as experience and contributions in his or her current role.
For purposes of setting compensation for 2017, the Committee, based on recommendations from Pearl Meyer, approved the following Compensation Peer Group, which includes the following 15 industry peer companies and eight REIT peer companies:
| Industry Peer Companies
|
REIT Peer Companies
| |
| Boyd Gaming Corporation
|
Ashford Hospitality Trust, Inc. | |
| Brinker International, Inc.
|
DiamondRock Hospitality Company | |
| Cedar Fair, L.P.
|
FelCor Lodging Trust Incorporated | |
| Chipotle Mexican Grill, Inc.
|
Host Hotels & Resorts, Inc. | |
| Choice Hotels International, Inc.
|
LaSalle Hotel Properties | |
| Dave & Buster’s Entertainment, Inc.
|
RLJ Lodging Trust | |
| DineEquity, Inc.
|
Ryman Hospitality Properties, Inc. | |
| Dunkin’ Brands Group, Inc.
|
Sunstone Hotel Investors, Inc. | |
| GNC Holdings, Inc.
|
||
| Hyatt Hotels Corporation
|
||
| La Quinta Holdings Inc.
|
||
| Panera Bread Company
|
||
| Six Flags Entertainment Corporation
|
||
| The Wendy’s Company
|
||
| Vail Resorts, Inc.
|
||
2017 Executive Compensation Program in Detail
Base salary is considered together with the annual cash incentive opportunity as part of a cash compensation package. Generally, ESH REIT believes that the base salary level should be aligned with the NEO’s position, duties and experience, be reasonable relative to the other NEOs’ base salaries and be set at a level that is competitive as compared to salaries for similar positions within companies or markets from which we recruit talent.
The Compensation Committee reviews the compensation of each of the NEOs in May of each year, including base salary, and makes recommendations to the Board with respect to changes based on performance and a review of market compensation.
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 29 |
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| NEO | Salary Through May 2017 |
Salary |
Salary Adjustment $ |
Salary Effective June 2017 |
||||||||||||
|
Gerardo I. Lopez
|
$ |
1,030,000 |
|
|
0 |
% |
$ |
0 |
|
$ |
1,030,000 |
| ||||
| Jonathan S. Halkyard
|
$ | 583,495 | 3 | % | $ | 16,505 | $ | 600,000 | ||||||||
| John R. Dent
|
$ | 360,500 | 18 | % | $ | 64,500 | $ | 425,000 | ||||||||
| James G. Alderman Jr.
|
$ | 410,000 | 2 | % | $ | 8,000 | $ | 418,000 | ||||||||
| Howard J. Weissman
|
$ | 245,011 | 3 | % | $ | 7,350 | $ | 252,361 | ||||||||
Mr. Lopez did not receive a salary increase in 2017. Mr. Halkyard and Mr. Weissman received a 3% increase consistent with companywide increases. Mr. Alderman received a 2% increase consistent with companywide increases and his then-recent hire date. Mr. Dent received an 18% increase in order to move him closer to the market median.
The 2017 Annual Incentive Program provided our NEOs the opportunity to earn a performance-based annual cash bonus. Actual award payouts depend on the achievement of pre-established performance objectives and can range from 0% to 200% of target award amounts. For 2017, each of our NEOs was eligible to earn a target annual award equal to 100% of his annual base salary. The Committee also considered market data in setting the following threshold, target and maximum award opportunities for 2017:
|
Annual Incentive Opportunity |
||||||||||||||||
| NEO | Base Salary |
Threshold (50% |
Target (100% of Base Salary) |
Maximum (200% of Base Salary) |
||||||||||||
|
Gerardo I. Lopez
|
$ |
1,030,000 |
|
$ |
515,000 |
|
$ |
1,030,000 |
|
$ |
2,060,000 |
| ||||
| Jonathan S. Halkyard
|
$ | 600,000 | $ | 300,000 | $ | 600,000 | $ | 1,200,000 | ||||||||
| John R. Dent
|
$ | 425,000 | $ | 212,250 | $ | 425,000 | $ | 850,000 | ||||||||
| James G. Alderman Jr.
|
$ | 418,000 | $ | 209,000 | $ | 418,000 | $ | 836,000 | ||||||||
| Howard J. Weissman*
|
$ | 252,361 | $ | 44,163 | $ | 88,326 | $ | 176,653 | ||||||||
*Mr. Weissman’s threshold, target, and maximum percentages are 17.5%, 35%, and 70%, respectively.
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For 2017, annual incentive awards were based on achievement of Adjusted EBITDA goals (weighted at 100%) for the Company. Adjusted EBITDA provides a useful illustration of the Company’s financial performance and the ongoing operations of its business, since the adjustments exclude certain expenses that are not indicative of recurring core operating results. Consistent with the Committee’s philosophy to set target payout levels such that the relative difficulty of achieving the goal is anticipated to be consistent from year to year, for 2017, the target Adjusted EBITDA performance level represented a 3.3% increase over 2016 performance levels. Further, the target Adjusted EBITDA performance level reflects (when set) the expectations of the general economic and industry factors for the coming year and the results of management’s initiatives to improve the performance of the Company.
The following table summarizes the threshold, target and maximum Adjusted EBITDA goals, as well as actual results for fiscal 2017. Straight-line interpolation is applied for performance above threshold. For purposes of the annual incentive awards, “EBITDA” refers to Adjusted EBITDA of the Company, as defined in our combined annual report on Form 10-K for the year ended December 31, 2017.
| Performance Measure |
|
Threshold |
|
Target | Maximum | Actual | ||||||||||||
|
Adjusted EBITDA (in millions) |
|
$599 |
|
|
$630 |
|
|
$659 |
|
|
$623 |
|
Target EBITDA was originally set in February 2017 at $636 million, representing a 3.3% increase over 2016 actual achievement. The target performance level was subsequently adjusted to $630 million during the year to reflect the sale of hotel properties and other adjustments that were not contemplated in setting the original target. The threshold and maximum performance levels were adjusted accordingly.
Based on the above results, for 2017, the Compensation Committee determined that the Corporation’s EBITDA target was achieved at the 87.9% level. Mr. Lopez, Mr. Halkyard, Mr. Dent, Mr. Alderman, and Mr. Weissman earned bonuses of $905,370, $527,400, $373,575, $367,422 and $77,639, respectively. The 2017 bonuses were paid in March 2018.
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Our NEOs are eligible for long-term equity incentives, all of which are issued under the terms of our Equity Incentive Plan, which is designed to provide incentives for NEOs to execute on longer-term financial/strategic goals that drive shareholder value creation and support ESH REIT’s retention strategy. To this end, our approach to long-term incentive compensation includes a combination of performance-based and time-vested equity awards. The following table summarizes grants made in 2017.
|
Type of Equity Award |
Weighting | Description | ||
|
Performance-Based Restricted Stock Units |
70% |
ñ One half of the performance award (35%) vests based on the achievement of Adjusted EBITDA goals. Awards vest one third each year over a three-year performance period. | ||
| ñ One half of the performance award (35%) vests based on rTSR against a group of peer companies over a three-year performance period.
| ||||
| Time-Based Restricted Stock Units |
30% | ñ Awards vest one third per year over three years. | ||
The table below shows the long-term incentive award values granted for fiscal 2017 for each of the NEOs (as presented in the Grants of Plan-Based Awards Table):
| NEO | Performance-Based Restricted Stock (70%) |
Time-Based Restricted Stock (30%) |
Total Value | |||||||||||||
|
Adjusted EBITDA |
rTSR (35%) |
|||||||||||||||
| Gerardo I. Lopez*
|
$ | – | $ | – | $ | – | $ | – | ||||||||
| Jonathan S. Halkyard
|
$ | 210,377 | $ | 224,000 | $ | 180,311 | $ | 614,688 | ||||||||
| John R. Dent
|
$ | 129,985 | $ | 138,384 | $ | 111,401 | $ | 379,770 | ||||||||
| James G. Alderman Jr.
|
$ | 147,819 | $ | 157,391 | $ | 737,454 | $ | 1,042,664 | ||||||||
| Howard J. Weissman
|
$ | 26,507 | $ | 28,204 | $ | 22,720 | $ | 77,431 | ||||||||
*Mr. Lopez did not receive any equity grants in 2017 pursuant to his 2015 letter agreement.
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Adjusted EBITDA performance based grants
With respect to the performance-based RSUs subject to Adjusted EBITDA performance goals (“EBITDA RSUs”) (which constitute 35% of the total number of the restricted stock units granted), one-third are scheduled to vest each year over a three-year period subject to annual Adjusted EBITDA goals. Following the 2017 performance period, (i) all three tranches of the EBITDA RSUs granted in 2015 have vested, in the aggregate, as to 86.5%; (ii) one tranche of the EBITDA RSUs granted in 2016 remains subject to vesting over the 2018 performance period; and (iii) two tranches of the EBITDA RSUs granted in 2017 remain subject to vesting over the 2018 and 2019 performance periods.
After giving effect to the adjustment for the sale of hotel properties during the year as described above, the Committee established the following threshold, target and maximum performance levels for Adjusted EBITDA RSUs eligible to vest during the 2017 annual performance period: threshold, $599 million; target, $630 million, and maximum, $659 million. The Committee determined that based on Adjusted EBITDA results of $623 million for the 2017 performance period, 87.9% of the target was earned. The table below indicates the number of Paired Shares issued in 2017 in settlement of Adjusted EBITDA RSUs granted in 2015, 2016 and 2017 (in each case, relating to the one-third of the grant that was eligible to vest over the 2017 annual performance period) based on achievement of 87.9% of target.
|
Vested Over the 2017 Annual Performance Period
|
||||||||||||
| NEO |
2015 Adjusted EBITDA |
2016 Adjusted EBITDA RSUs |
2017 Adjusted EBITDA RSUs |
|||||||||
|
Gerardo I. Lopez *
|
— | 92,295 | — | |||||||||
|
Jonathan S. Halkyard
|
2,440 | 4,689 | 3,534 | |||||||||
|
John R. Dent
|
1,330 | 2,898 | 2,184 | |||||||||
|
James G. Alderman Jr.
|
— | — | 2,484 | |||||||||
|
Howard J. Weissman
|
313 | 584 | 446 | |||||||||
* Mr. Lopez did not receive grants in 2015 or 2017
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Relative Total Shareholder Return Grants
rTSR: 2017-2019 Performance Cycle. The performance-based restricted stock units subject to rTSR targets (“rTSR RSUs”) are eligible to vest at the end of a three-year performance period based on the rTSR of the Company as compared to the results of a specific group (see list below) during the three-year performance period. Payouts can range from 0% to 150% based on the Company’s TSR achievement versus that of the peer group. If the Company’s TSR is negative, the maximum payout is limited to 100%.
| Performance Level | Performance Ranking |
Paired Shares Earned as a Percentage of Target | ||
|
< Threshold
|
< 35th %tile | 0% | ||
| Threshold
|
35th %tile | 50% | ||
| Target
|
Median | 100% | ||
| Maximum
|
75th %tile | 150% |
* Straight-line interpolation is applied for performance between threshold and target, and target and maximum, subject to a maximum payout of 100% if the Company’s TSR is negative.
With respect to the rTSR RSUs granted in 2017, the specific comparator group consisted of the following 19 companies: Ashford Hospitality Trust, Ashford Hospitality Prime, Chatham Lodging Trust, Chesapeake Lodging Trust, Choice Hotels International, DiamondRock Hospitality, FelCor Lodging Trust, Hersha Hospitality Trust, Hilton Worldwide Holdings, Hospitality Properties Trust, Host Hotels and Resorts, Hyatt Hotels, La Quinta Holding, LaSalle Hotel Properties, Marriott International, RLJ Lodging Trust, Summit Hotel Properties, Sunstone Hotel Investors, and Wyndham Worldwide.
As described above, beginning in February 2018, 100% of the performance-based portion of long-term incentive compensation vests based on achievement of rTSR.
Other Practices, Policies and Guidelines
Because we believe holding equity interests in ESH REIT will discourage executives and members of our Board from taking excessive business risks, we maintain stock ownership guidelines to encourage our key executives to own stock at least equal in value to a multiple of base salary as follows: Mr. Halkyard, five times; the Chief Financial Officer, four times; and each of Mr. Dent and Mr. Alderman, three times. Shares that count towards satisfaction of these stock ownership guidelines generally include shares owned by the participant and vested restricted stock units. Our NEOs generally have a five-year period to meet the holding requirements from the date they first become subject to the guideline. The end of the five-year period for achieving the holding requirement has not occurred for any of the executives.
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We prohibit the NEOs and other executives from engaging in transactions designed to insulate them from changes in the Company’s stock price. Therefore, ESH REIT has an Anti-Hedging Policy that prohibits our NEOs from entering into transactions that include (without limitation) equity swaps or short sales of our securities, margin accounts or pledges of our securities, and hedges or monetization transactions involving our securities that are designed to hedge or offset any decrease in the market value of securities. In addition, the purchase or sale of puts, calls, options, or other derivative securities based on our securities is prohibited under this policy, and borrowing against any account in which our securities are held is prohibited.
Effective January 1, 2018 we implemented a clawback policy that covers all NEOs. The policy provides that in the event of a financial restatement, the Board has the discretion to require NEOs to return compensation that had been previously paid but was beyond what would have been earned under the results reflected in the restated financial statements.
ESH REIT offers executive officers, including the NEOs, participation in health and welfare benefit programs in the same manner as other employees, including participation in ESA Management’s 401(k) Plan. Pursuant to the 401(k) Plan, executive officers are eligible to receive employer matching contributions, which vest over an employee’s initial three-year service period. Each of the NEOs participates in the 401(k) Plan.
Effective June 9, 2016, ESA Management sponsors the ESA Management, LLC Deferred Compensation Plan, in which each of our NEOs may participate. For a summary of the participation by our NEOs in this plan, see “Deferred Compensation Plan.”
We provide limited perquisites to our NEOs when determined to be necessary and appropriate, including payment of certain relocation expenses for executives who were not located in Charlotte, North Carolina at the time they joined the Company. During 2017, we reimbursed Mr. Lopez, Mr. Dent, and Mr. Alderman for reasonable transportation expenses incurred in connection with commuting to Charlotte, North Carolina. Pursuant to the terms of his letter agreement, Mr. Lopez was entitled to a housing allowance of $3,000 per month and a related gross-up for such amount for so long as he continued to commute to Charlotte, North Carolina. Pursuant to the terms of their letter agreements, Mr. Dent and Mr. Alderman are each entitled to a housing allowance of $2,000 per month and a related gross-up for such amount for so long as they each continue to commute to Charlotte, North Carolina.
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Each of the NEOs is entitled to severance benefits as a participant under the Severance Plan. In addition, each of the NEOs is entitled to benefits upon a change in control pursuant to their equity award agreements as described under “Potential Payments Upon Termination or Change in Control.”
Mr. Lopez – As discussed above, Mr. Halkyard succeeded Mr. Lopez as our CEO effective January 1, 2018. Mr. Lopez continued employment as a Senior Advisor reporting to Mr. Halkyard through March 18, 2018 at an annualized base salary of $543,465. Mr. Lopez was paid his annual cash incentive award in respect of 2017 in March 2018, and his equity awards remained eligible to vest through March 18, 2018. Mr. Lopez is not eligible for any 2018 incentive grants (annual or long-term). In addition, 33,333 time vesting shares that would not have vested until August 18, 2018 were accelerated and vested on March 12, 2018. Since Mr. Lopez voluntarily resigned, he was not eligible for severance benefits.
Mr. Halkyard – Key components of Mr. Halkyard’s compensation effective upon his assuming the CEO role on January 1, 2018 are:
| ñ | Annual salary of $900,000 |
| ñ | Annual incentive target opportunity of 100% of salary |
| ñ | Equity grant value for 2018 of $3,200,000 of which 50% is time vesting over three years and 50% is performance vesting based on rTSR. These grants were made in March of 2018 |
Impact of Tax Consideration on Compensation
Prior to January 1, 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) limited ESH REIT’s deduction for compensation paid to the NEOs (with the exception of the chief financial officer) named in the Summary Compensation Table to $1 million during the tax year, subject to certain permitted exceptions. The Equity Incentive Plan was structured so that awards of stock options, stock appreciation rights and certain performance awards would be granted in a manner that satisfied the exception under Section 162(m) of the Code for qualified “performance-based compensation,” and similarly, the Extended Stay America, Inc. Annual Incentive Plan was structured so that annual performance-based incentive awards made thereunder would also satisfy the exception under Section 162(m). However, although the Compensation Committee considered the impact of Section 162(m) of the Code in making its past compensation decisions, it believed the tax deduction was only one of several relevant considerations in setting compensation. Accordingly, if it deemed it appropriate to provide compensation that did not constitute qualified performance-based compensation, the Compensation Committee would do so and, in such event, certain portions of compensation paid to the NEOs may not have been deductible for federal income tax purposes by reason of Section 162(m) of the Code.
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As a result of the Tax Cuts & Jobs Act passed at the end of 2017, the exception for performance-based compensation under Section 162(m) has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers (which now includes all four active NEOs, including our CFO) in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Because of uncertainties as to the application and interpretation of Section 162(m) and its related regulations going forward, no assurance can be given that compensation paid to our executives that is intended to be tax deductible, in fact will be tax deductible. In response to this change, the Compensation Committee is carefully considering the structure of the Company’s executive compensation plans, but does not anticipate any material changes at this time.
Report of the Compensation Committee of the Board
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Douglas G. Geoga, Chair
Neil T. Brown
Steven E. Kent
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 37 |
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The following table sets forth the portion of compensation paid to the NEOs that is attributable to services performed during the fiscal years ended December 31, 2017, December 31, 2016 and December 31, 2015.
|
Name and Principal Position |
Year | Salary | Bonus | Stock Awards(1) |
Non-Equity Incentive Plan Compensation |
All Other Compensation |
Total | |||||||||||||||||||||
| Gerardo I. Lopez President and Chief Executive Officer |
|
2017
|
|
$ | 1,030,000 | $ | – | $ | – | $ | 905,370 | $ | 154,482 (2) | $ | 2,089,852 | |||||||||||||
|
|
2016
|
|
$ | 1,030,000 | $ | – | $ | 12,020,400 | $ | 762,200 | $ | 97,563 | $ | 13,910,163 | ||||||||||||||
|
|
2015
|
|
$ | 356,164 | $ | 400,000 | $ | 4,449,000 | $ | – | $ | 51,482 | $ | 5,256,646 | ||||||||||||||
| Jonathan S. Halkyard, Chief Financial Officer |
|
2017
|
|
$ | 600,000 | $ | – | $ | 614,689 | $ | 522,400 | $ | 29,992 (3) | $ | 1,767,081 | |||||||||||||
|
|
2016
|
|
$ | 583,495 | $ | – | $ | 610,664 | $ | 426,786 | $ | 16,261 | $ | 1,637,206 | ||||||||||||||
|
|
2015
|
|
$ | 560,714 | $ | – | $ | 2,344,423 | $ | 558,668 | $ | 83,240 | $ | 3,547,045 | ||||||||||||||
| John R. Dent, General Counsel and |
|
2017
|
|
$ | 425,000 | $ | – | $ | 379,770 | $ | 373,575 | $ | 82,970 (4) | $ | 1,261,315 | |||||||||||||
|
|
2016
|
|
$ | 360,500 | $ | – | $ | 377,294 | $ | 266,770 | $ | 114,371 | $ | 1,118,935 | ||||||||||||||
|
|
2015
|
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| James G. Alderman Jr., Chief Asset Merchant |
|
2017
|
|
$ | 418,000 | $ | – | $ | 1,042,665 | $ | 367,422 | $ | 63,025 (5) | $ | 1,891,112 | |||||||||||||
|
|
2016
|
|
$ | 61,500 | $ | 80,000 | $ | – | $ | – | $ | 7,529 | $ | 149,029 | ||||||||||||||
|
|
2015
|
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| Howard J. Weissman, Corporate Controller and Chief Accounting Officer |
|
2017
|
|
$ | 252,361 | $ | – | $ | 77,431 | $ | 77,639 | $ | 7,086 (6) | $ | 414,517 | |||||||||||||
|
|
2016
|
|
$ | 245,011 | $ | – | $ | 75,997 | $ | 63,458 | $ | 7,153 | $ | 391,618 | ||||||||||||||
| 2015 | $ | 229,972 | $ | – | $ | 56,057 | $ | 86,839 | $ | 5,595 | $ | 378,463 | ||||||||||||||||
| (1) | The amounts included in the “Stock Awards” column represent the grant date fair value of the restricted stock units granted, computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 13—Equity-Based Compensation to the audited consolidated and combined financial statements of ESH Hospitality, Inc. included in the combined annual report on Form 10-K for the fiscal year ended December 31, 2017 of the Corporation and ESH REIT. |
| (2) | This amount includes (i) $36,000 in Mr. Lopez’s cost of living allowance and a related gross-up of $23,115, (ii) $30,900 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Lopez, (iii) $35,502 in cost of travel to and from Charlotte, North Carolina and a related gross-up of $17,405, (iv) $11,377 in matching contributions made to the 401(k) Plan on behalf of Mr. Lopez and (v) $183 in long-term disability costs paid by the Corporation. |
| (3) | This amount includes (i) $17,809 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Halkyard, (ii) $12,000 in matching contributions made to the 401(K) Plan on behalf of Mr. Halkyard and (iii) $183 in long-term disability costs paid by the Corporation. |
| (4) | This amount includes (i) $24,000 in Mr. Dent’s cost of living allowance and a related gross-up of $16,451, (ii) $19,747 in cost of travel to and from Charlotte, North Carolina and a related gross-up of $9,704, (iii) $8,227 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Dent, (iv) $4,658 in matching contributions made to the 401(k) Plan on behalf of Mr. Dent and (v) $183 in long-term disability costs paid by the Corporation. |
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| (5) | This amount includes (i) $24,000 in Mr. Alderman’s cost of living allowance and a related gross-up of $17,335, (ii) $12,448 in matching contributions made to the Deferred Compensation Plan on behalf of Mr. Alderman, (iii) $6,059 in matching contributions made to the 401(K) Plan on behalf of Mr. Alderman, (iv) $2,548 in cost of travel to and from Charlotte, North Carolina and related gross-up of $452 and (iv) $183 in long-term disability costs paid by the Corporation. |
| (6) | This amount includes (i) $6,904 in matching contributions made to the 401(k) Plan on behalf of Mr. Weissman and (ii) $183 in long-term disability costs paid by the Corporation. |
The following table summarizes the awards granted to each of the NEOs during the fiscal year ended December 31, 2017. The estimated possible payouts of the non-equity incentive plan awards in 2017 and the performance measures used to calculate such awards are discussed above in the section entitled “Annual Cash Incentive Awards.”
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
Estimated Possible Payouts Under Equity Incentive Plan Awards |
All Other Stock Awards: Number of Paired Shares of Stock or Units (#) |
Grant Date Fair Value of Paired Shares of Stock or |
|||||||||||||||||||||||||||||||||
| Name | Grant Date |
Threshold | Target | Maximum |
Threshold |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||
| Gerardo I. |
— | $ 0 | $ | 1,030,000 | $ | 2,060,000 | ||||||||||||||||||||||||||||||
| Lopez |
||||||||||||||||||||||||||||||||||||
|
Jonathan S. |
— | $ 0 | $ | 600,000 | $ | 1,200,000 | ||||||||||||||||||||||||||||||
| Halkyard |
2/21/2017 | — | $ | — | $ | — | — | — | — | 10,333(1) | $ | 180,311 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 6,028 | 12,056 | 24,112(2) | — | $ | 210,377 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 6,028 | 12,056 | 18,084(3) | — | $ | 224,000 | (4) | ||||||||||||||||||||||||
| John R. |
— | $ 0 | $ | 425,000 | $ | 850,000 | ||||||||||||||||||||||||||||||
| Dent |
2/21/2017 | — | $ | — | $ | — | — | — | — | 6,384(1) | $ | 111,401 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 3,725 | 7,449 | 14,898(2) | — | $ | 129,985 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 3,724 | 7,448 | 11,172(3) | — | $ | 138,384 | (4) | ||||||||||||||||||||||||
| James G. |
— | $ 0 | $ | 418,000 | $ | 836,000 | ||||||||||||||||||||||||||||||
| Alderman Jr. |
2/21/2017 | — | $ | — | $ | — | — | — | — | 42,261(5) | $ | 737,454 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,236 | 8,471 | 16,942(2) | $ | 147,819 | (4) | |||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 4,236 | 8,471 | 12,707(3) | $ | 157,391 | (4) | |||||||||||||||||||||||||
| Howard J. |
— | $ 0 | $ | 252,361 | $ | 176,653 | $ | |||||||||||||||||||||||||||||
| Weissman |
2/21/2017 | — | $ | — | $ | — | — | — | — | 1,302(1) | $ | 22,720 | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 760 | 1,519 | 3,038(2) | — | $ | 26,507 | (4) | ||||||||||||||||||||||||
| 2/21/2017 | — | $ | — | $ | — | 759 | 1,518 | 2,277(3) | — | $ | 28,204 | (4) | ||||||||||||||||||||||||
| (1) | Represents grant of service-based restricted stock units made on February 21, 2017. Under the terms of the award agreement, one-third of the restricted stock units vested on February 21, 2018 and one-third of the restricted stock units are scheduled to vest on each of February 21, 2019, and February 21, 2020. |
| ESH HOSPITALITY, INC. | 2018 PROXY STATEMENT | 39 |
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| proposal 2: say-on-pay |
| (2) | Represents grant of performance-based restricted stock units with annual EBITDA performance vesting conditions. Under the terms of the award agreement, these restricted stock units have the ability to earn Paired Shares in a range of 0% to 200% of the awarded number of restricted stock units based on linear interpolation of the achievement of an annual EBITDA performance target. One-third of the restricted stock units vested on December 31, 2017 at 87.9 %. One-third of the restricted stock units are scheduled to vest on December 31, 2018 and one-third of the restricted stock units are scheduled to vest on December 31, 2019. |
| (3) | Represents grant of performance-based restricted stock units granted on February 21, 2017 with market vesting conditions. Under the terms of the award agreement, the restricted stock units are scheduled to vest on December 31, 2020, with the ability to earn Paired Shares in a range of 0% to 150% of the awarded number of restricted stock units based on linear interpolation of the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreement. |
| (4) | Grant date fair value of restricted stock units with annual performance vesting conditions and market vesting conditions assumes that awards will vest at target. If highest levels of performance and market conditions are achieved, grant date fair value would be higher. |
| (5) | Represents grant of 7,261 service-based restricted stock units made on February 21, 2017. Under the terms of the award agreement, one-third of the restricted stock units vested on February 21, 2018 and one-third of the restricted stock units are scheduled to vest on each of February 21, 2019 and February 21, 2020. Also represents grant of 35,000 service-based restricted stock units made on February 21, 2017. Under the terms of the agreement, this award is scheduled to vest on February 21, 2020. |
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of securities underlying the equity awards held by each of the NEOs as of the fiscal year ended December 31, 2017.
|
Stock Awards
| ||||||||||||||
| Name | Number of Shares or Units of Stock That Have Not Vested(1) |
Market Value of Shares or Units of Stock That Have Not Vested |
Equity Incentive Plan Awards: Number of Unearned Paired Shares, Units or Other Rights that Have Not Yet Vested(1) |
Equity Incentive Plan Awards: Market or Payout Value of Shares, Units or Other Rights that Have Not Yet Vested(1) |
||||||||||
| Gerardo I. Lopez |
123,333 | (2) | $ | 2,343,327 | — (3) | $ | — | |||||||
| Jonathan S. Halkyard |
32,597 | (4) | $ | 619,343 | 27,400 (5) | $ | 520,600 | |||||||
| John R. Dent |
14,052 | (6) | $ | 266,988 | 16,928 (7) | $ | 321,623 | |||||||
| James G. Alderman Jr. |
42,261 | (8) | $ | 802,959 | 9,883 (9) | $ | 187,768 | |||||||
| Howard J. Weissman |
2,915 | (10) | $ | 55,385 | 3,431 (11) | $ | 65,189 | |||||||
| (1) | As of December 31, 2017, the fair market value of a Paired Share was $19.00. The number of Paired Shares included in this column includes (x) restricted stock units subject to annual EBITDA performance vesting conditions and (y) restricted stock units subject to vesting based on total shareholder return, in each case, as described in the Grants of Plan-Based Awards Table. For Messrs. Halkyard, Dent, Alderman and Weissman, vested restricted stock units will be settled on the 15th day of March (or, in any year when the 15th day of March falls on a non-business day, the business day immediately prior to such date) immediately following the applicable vesting date. |
| (2) | Mr. Lopez’s service-based restricted stock units vested on March 12, 2018 and were settled on March 15, 2018. |
| (3) | For Mr. Lopez, the restricted stock units included in this column exclude 92,295 shares that vested at 87.9% based on 2017 performance and which were settled on March 15, 2018. |
| (4) | Mr. Halkyard’s service-based restricted stock units are scheduled to vest as follows: (i) 3,444 on February 21, 2019, (ii) 4,572 on March 12, 2019 and (iii) 3,444 on February 21, 2020. 21,137 of Mr. Halkyard’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
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| (5) | For Mr. Halkyard, the restricted stock units included in this column exclude 10,633 shares that vested at 87.9% based on 2017 performance and 8,325 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
| (6) | Mr. Dent’s service-based restricted stock units are scheduled to vest as follows: (i) 2,218 on February 21, 2019, (ii) 2,825 on March 12, 2019 and (iii) 2,128 on February 21, 2020. 6,971 of Mr. Dent’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
| (7) | For Mr. Dent, the restricted stock units included in this column exclude 6,412 shares that vested at 87.9% based on 2017 performance and 4,541 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
| (8) | Mr. Alderman’s service-based restricted stock units are scheduled to vest as follows: (i) 2,420 on February 21, 2019 and (ii) 37,420 on February 21, 2020. 2,421 of Mr. Alderman’s restricted stock units, which vested in February 2018, were settled on March 15, 2018. |
| (9) | For Mr. Alderman, the restricted stock units included in this column exclude 2,484 shares that vested at 87.9% based on 2017 performance which were settled on March 15, 2018. |
| (10) | Mr. Weissman’s service-based restricted stock units are scheduled to vest as follows: (i) 434 on February 21, 2019, (ii) 570 on March 12, 2019 and (iii) 434 on February 21, 2020. 1,477 of Mr. Weissman’s restricted stock units, which vested in February 2018 and March 2018, were settled on March 15, 2018. |
| (11) | For Mr. Weissman, the restricted stock units included in this column exclude 1,343 shares that vested at 87.9% based on 2017 performance and 1,067 shares that vested at 100% based on relative total shareholder return, both of which were settled on March 15, 2018. |
The following table summarizes the vested or settled Paired Shares acquired by each of the NEOs during the fiscal year ended December 31, 2017.
|
Stock Awards | ||||
| Name |
Number of Paired Shares Acquired on Vesting or Settlement (1) |
Value Realized on Vesting or Settlement | ||
| Gerardo I. Lopez
|
215,628 | $ $4,035,829 | ||
| Jonathan S. Halkyard
|
36,682 | $ $678,150 | ||
| John R. Dent
|
15,796 | $ $301,825 | ||
| James G. Alderman Jr.
|
2,484 | $ $50,152 | ||
| Howard J. Weissman
|
3,453 | $ $66,034 | ||
| (1) | Represents Paired Shares received in settlement of vested restricted stock units granted under the Equity Incentive Plan. |
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The following table summarizes participation by our NEOs in our defined contribution plan that provides for the deferral of compensation on a basis that is not tax-qualified:
| Executive Contributions in Last FY |
Registrant in Last FY(1) |
Aggregate Earnings in Last FY |
Aggregate |
Aggregate Balance at Last FYE | ||||||
| Gerardo I. Lopez
|
$ 103,000 | $ 30,900 | $ 15,267 | $ — | $ 149,167 | |||||
| Jonathan S. Halkyard
|
$ 35,619 | $ 17,810 | $ 3,013 | $ — | $ 56,442 | |||||
| John R. Dent
|
$ 16,454 | $ 8,227 | $ 1,776 | $ — | $ 26,457 | |||||
| James G. Alderman Jr.
|
$ 24,895 | $ 12,448 | $ 2,726 | $ — | $ 40,069 | |||||
| Howard J. Weissman
|
$ 3,856 | $ — | $ 512 | $ — | $ 4,368 | |||||
(1) Amounts included in this column are also reflected in “All Other Compensation” as reported in the Summary Compensation Table.
(2) Withdrawals and distributions permitted after a minimum of two years after enrollment. Plan is not yet two years old.
Our nonqualified deferred compensation plan provides an opportunity for NEOs and other eligible associates to increase savings and retirement accumulation on a tax-advantaged basis, beyond the limits of the company’s 401(k) plan. The plan allows participants to defer (i) up to 50% of annual compensation from base compensation and up to 100% of annual compensation from earned incentive bonus, and (ii) any 401(k) plan contributions returned as a result of any failure of the 401(k) plan to pass non-discrimination testing. The plan provides an alternative method for participants to save and invest on a pretax basis and utilize a diverse choice of investment options.
ESH REIT matches 50% of base salary deferrals for the first 6% of base salary deferred. Match contributions are capped at the lesser of (i) 3% of base salary or (ii) amounts deferred beyond $275,000 of a participant’s total annual compensation.
Distributions can be made upon separation from service, unforeseeable emergency, disability or death, or an in-service specified date. Distribution timing is elected by the plan participant at the time of enrollment. The participant selects investment funds from a broad range of options. Earnings and losses on each account are determined based on the performance of the investment funds selected by the participant.
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Potential Payments Upon Termination or Change in Control
The summary description and tables below describe the arrangements that were in effect for each of our NEOs as of December 31, 2017. As of such date, each of our NEOs was subject to the terms of the Severance Plan.
The Severance Plan provides that in the event a participant is terminated without Cause or by the participant for Good Reason, the participant shall be entitled to the following payments and benefits (collectively, the “Severance Plan Benefits”), subject to execution and delivery of a release of claims:
| ñ | a cash payment equal to the sum of (A) 1.0 x annual base salary in effect immediately prior to the date of termination, and (B) 1.0 x target annual bonus for the year in which termination occurs, payable in a single lump sum within sixty (60) days following the date of termination (for the CEO, 1.5 x in both instances); |
| ñ | continued eligibility to participate in ESA Management’s group health plans pursuant to COBRA, provided, that, for 12 months following the date of termination, the participant shall be responsible for the payment of the portion of the costs associated with such health coverage continuation equal to the amount paid by an active employee for similar coverage and ESA Management shall pay the balance of the cost for such coverage, provided, further, that ESA Management’s obligation to pay such balance shall cease if the participant becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise; and |
| ñ | payment for executive outplacement services provided by a firm to be determined by ESA Management in its sole discretion for a period of six months following the date of termination. |
Pursuant to the Severance Plan, each of our NEOs is bound by perpetual confidentiality and non-disparagement restrictions, and non-solicitation and non-competition restrictions that extend for the one-year period following a termination by ESA Management without Cause or by the executive for Good Reason.
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Upon a Change in Control, with respect to each of our NEOs, restricted stock units which are not vested as of the date of the Change in Control would vest immediately upon such Change in Control.
| Base Salary | Bonus Amount |
Benefits |
Equity Acceleration(2) |
Total | ||||||||||||||||
|
Upon Termination by ESA Management without Cause or by the Executive for Good Reason
|
||||||||||||||||||||
|
Gerardo I. Lopez
|
$ | 1,545,000 | $ | 1,545,000 | $ | 20,066 | — | $ | 3,110,066 | |||||||||||
|
Jonathan S. Halkyard
|
$ | 600,000 | $ | 600,000 | $ | 20,066 | — | $ | 1,220,066 | |||||||||||
|
John R. Dent
|
$ | 425,000 | $ | 425,000 | $ | 20,066 | — | $ | 870,066 | |||||||||||
|
James G. Alderman Jr.
|
$ | 418,000 | $ | 418,000 | $ | 19,003 | — | $ | 855,003 | |||||||||||
|
Howard J. Weissman
|
$ | 252,361 | $ | 252,361 | $ | 19,003 | — | $ | 523,725 | |||||||||||
|
Upon Termination by ESA Management without Cause or by the Executive for
Good Reason
|
||||||||||||||||||||
|
Gerardo I. Lopez
|
$ | 1,545,000 | $ | 1,545,000 | $ | 20,066 | $ | 2,343,327 | $ | 5,453,393 | ||||||||||
|
Jonathan S. Halkyard
|
$ | 600,000 | $ | 600,000 | $ | 20,066 | $ | 1,196,943 | $ | 2,417,009 | ||||||||||
|
John R. Dent
|
$ | 425,000 | $ | 425,000 | $ | 20,066 | $ | 588,620 | $ | 1,458,686 | ||||||||||
|
James G. Alderman Jr.
|
$ | 418,000 | $ | 418,000 | $ | 19,003 | $ | 990,736 | $ | 1,845,739 | ||||||||||
|
Howard J. Weissman
|
$ | 252,361 | $ | 252,361 | $ | 19,003 | $ | 120,574 | $ | 644,299 | ||||||||||
| (1) | Amounts in this column represent the value of the benefits continuation and executive outplacement services provided under the Severance Plan. |
| (2) | Amounts in this column represent the value of the acceleration of restricted stock units which were outstanding as of December 31, 2017. As of December 31, 2017, the fair market value of a Paired Share was $19.00. |
| (3) | The equity acceleration reflected in this section of the table occurs upon a Change in Control (assumed to occur on December 31, 2017), whether or not there is a termination of employment. |
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For purposes of the equity awards, the terms below are generally defined as follows:
| ñ | “Change in Control” is defined in the Amended and Restated ESH Hospitality, Inc. Long-Term Incentive Plan and generally means the occurrence of any of the following events with respect to ESH REIT: (a) any person (other than any person in connection with a non-control transaction as defined below) acquires securities of ESH REIT representing fifty percent or more of the combined voting power of ESH REIT’s then outstanding voting securities; (b) a majority of the members of the board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the board of directors serving immediately prior to such appointment or election; (c) any merger, consolidation or reorganization, unless shareholders immediately before such merger, consolidation or reorganization continue to own at least a majority of the combined voting power of such surviving entity following the transaction; (d) a complete liquidation or dissolution; or (e) sale or disposition of all or substantially all of the assets. A “non-control transaction” generally includes any transaction in which (a) shareholders immediately before such transaction continue to own at least a majority of the combined voting power of such resulting entity following the transaction; (b) a majority of the members of the board of directors immediately before such transaction continue to constitute at least a majority of the board of the surviving entity following such transaction; or (c) with certain exceptions, no person other than any person who had beneficial ownership of more than fifty percent of the combined voting power of ESH REIT’s then outstanding voting securities immediately prior to such transaction has beneficial ownership of more than fifty percent of the combined voting power of the surviving entity’s outstanding voting securities immediately after such transaction. |
For purposes of the Severance Plan and certain of Mr. Halkyard’s restricted stock units, the terms below are generally defined as provided below:
| ñ | “Cause” means with respect to the termination of a participant by ESA Management, such participant’s (i) refusal or neglect to perform substantially his employment-related duties or services, (ii) personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) indictment for, conviction of or entering a plea of guilty or nolo contendere to a crime constituting a felony or his willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment or services to the Company which does not adversely affect the Company or its reputation or the ability of the participant to perform his employment-related duties or services or to represent the Company), (iv) failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or (v) material breach of any written covenant or agreement with the Company not to disclose any information pertaining to the Company or not to compete or interfere with the Company. |
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| proposal 2: say-on-pay |
| ñ | “Good Reason” means any of the following, without the participant’s written consent: (a) a material diminution in a participant’s base salary; (b) a material diminution in a participant’s authority, duties or responsibilities; (c) a material change in the geographic location at which the participant must perform the services; or (d) any other action or inaction that constitutes a material breach by the service recipient of the agreement under which the participant provides services; provided, however, that a termination by the participant for any of the reasons listed in (a) through (d) above shall not constitute termination for Good Reason unless the participant shall first have delivered to ESA Management written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than sixty (60) days after the initial occurrence of such event), and ESA Management fails to cure such event within thirty (30) days after receipt of this written notice. The participant’s employment must be terminated for Good Reason within one hundred twenty (120) days after the occurrence of an event of Good Reason. A resignation by the participant for Good Reason effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code and Treas. Reg. Section 1.409A-1(n)(2). Good Reason shall not include the participant’s death or disability. |
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ratification of auditor
appointment
| 3 | Proposal No. 3 The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018.
Recommendation The Board unanimously recommends that you vote “FOR” Proposal No. 3 to ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of ESH Hospitality, Inc. for the fiscal year ending December 31, 2018.
|
The Audit Committee of the Board has appointed Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the fiscal year ending December 31, 2018. Deloitte also served as our independent registered accounting firm for fiscal year 2017. The services provided to us by Deloitte in fiscal year 2017 are described in the section of this Proxy Statement entitled “Independent Registered Public Accounting Firm’s Fees and Services.” Representatives of Deloitte will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they so desire.
The Audit Committee is responsible for selecting ESH REIT’s independent registered public accounting firm for 2018. Accordingly, shareholder approval is not required to appoint Deloitte as ESH REIT’s independent registered public accounting firm. However, the Board believes that the submission of the Audit Committee’s selection to the shareholders for ratification is a matter of good corporate governance. If ESH REIT’s shareholders do not ratify the selection of Deloitte as ESH REIT’s independent registered public accounting firm, the Audit Committee will review its future selection of an independent registered public accounting firm. The Audit Committee may retain another independent registered public accounting firm at any time during the year if it concludes that such change would be in the best interest of ESH REIT’s shareholders.
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| proposal 3: ratification of auditor appointment |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S FEES AND SERVICES
The following is a description of the professional services performed and the fees billed by Deloitte for the years ended December 31, 2017 and 2016.
| Type of Fees | December 31, 2017 | December 31, 2016 | ||||
| Audit Fees(1) |
$ 994,500 | $ | 1,222,500 | |||
| Tax Fees(2) |
$ — | $ | 119,194 | |||
| Total |
$ 994,500 | $ | 1,341,694 | |||
| (1) | Audit fees consist of fees for the audit of ESH REIT’s annual financial statements included in our combined annual reports on Form 10-K, quarterly reviews of ESH REIT’s financial statements included in our combined quarterly reports on Form 10-Q, accounting consultation and other attestation services provided by Deloitte in connection with statutory and regulatory filings. Audit fees also include fees for services provided by Deloitte in connection with ESH REIT’s May 2017 and 2016 secondary offerings, 2017 debt repricing, 2017 sales of hotel properties and 2016 debt offerings. |
| (2) | Tax fees are fees for tax compliance, tax advice and tax planning for entities required to file tax returns. |
The Audit Committee has considered whether the non-audit services provided by Deloitte were compatible with maintaining Deloitte’s independence and has determined that the nature and substance of the non-audit services did not impair the status of Deloitte as ESH REIT’s independent registered public accounting firm.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT RELATED SERVICES OF INDEPENDENT AUDITORS
The Audit Committee is responsible for the appointment, compensation, retention, oversight and termination of ESH REIT’s independent registered public accounting firm. The Audit Committee has adopted a policy requiring that substantially all audit, audit-related and non-audit services provided by the independent auditor be pre-approved by the Audit Committee. Pre-approval is not necessary for certain minor non-audit services that (i) do not constitute more than 5% of the total amount of revenues paid by ESH REIT to Deloitte during the fiscal year the non-audit services were provided and (ii) were not recognized by ESH REIT to be non-audit services at the time of the engagement for such services. In the case of such minor non-audit services that are not pre-approved, the services must be promptly brought to the attention of the Audit Committee and approved prior to completion. The Audit Committee may delegate authority to one or more independent members of the committee to grant pre-approvals of audit and permitted non-audit services, provided that any such pre-approvals are presented to the full Audit Committee at its next scheduled meeting. During 2017, 100% of the non-audit services provided to us by Deloitte were pre-approved by the Audit Committee.
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| proposal 3: ratification of auditor appointment |
The Audit Committee has adopted a policy that prohibits our independent auditors from providing the following services:
| > | bookkeeping or other services related to the accounting records or financial statements of ESH REIT; |
| > | financial information systems design and implementation; |
| > | appraisal or valuation services, providing fairness opinions or preparing contribution-in-kind reports; |
| > | actuarial services; |
| > | internal audit outsourcing services; |
| > | management functions or human resources; |
| > | broker or dealer, investment adviser or investment banking services; |
| > | legal services and expert services unrelated to the audit; and |
| > | any other service that the Public Company Accounting Oversight Board prohibits through regulation. |
The Audit Committee’s pre-approval policy is in the Audit Committee Charter, which is available on the investor relations section of our website at www.aboutstay.com.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The Audit Committee consists of Ms. Anand, Mr. Kent, and Ms. Palmer, with Ms. Anand serving as Chair. The Audit Committee oversees ESH REIT’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including maintaining an effective system of internal controls over financial reporting. The Audit Committee meets separately with management, ESH REIT’s internal auditors and the independent registered public accounting firm. The Audit Committee operates under a written charter approved by the Board, a copy of which is available on the investor relations section of our website at www.aboutstay.com. The charter, among other things, provides that the Audit Committee has full authority to appoint, compensate, retain, oversee and terminate when appropriate, the independent auditor.
In addition to fulfilling its oversight responsibilities as set forth in its charter and further described above in the sections titled “Corporate Governance and Board Matters—Board Oversight of Risk Management” and “Corporate Governance and Board Matters—Committees of the Board—Audit Committee,” the Audit Committee has done the following:
| > | reviewed and discussed the audited financial statements in the Company’s combined annual report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements; |
| > | reviewed with Deloitte, ESH REIT’s independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality and acceptability of ESH REIT’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards; |
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| proposal 3: ratification of auditor appointment |
| > | received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence, regarding Deloitte’s communications with the Audit Committee concerning independence; |
| > | discussed with Deloitte its independence from management and ESH REIT and considered whether Deloitte could also provide non-audit services without compromising the firm’s independence; |
| > | discussed with Deloitte the matters required to be discussed by the standards of the Public Company Accounting Oversight Board, including Public Company Accounting Oversight Board Auditing Standard No. 16, Communications with Audit Committees, and SEC Rules and Regulations, including Rule 2-07, Communication with Audit Committees, of Regulation S-X; and |
| > | discussed with ESH REIT’s internal auditors and Deloitte the overall scope and plans for their respective audits, and then met with the internal auditors and Deloitte, with and without management present, to discuss the results of their examinations, their evaluations of ESH REIT’s internal controls and the overall quality of ESH REIT’s financial reporting. |
Based on the foregoing reviews and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the combined annual report on Form 10-K for the year ended December 31, 2017, for filing with the SEC. The Audit Committee also appointed Deloitte to serve as ESH REIT’s independent registered public accounting firm for 2018.
This report has been furnished by the members of the Audit Committee of the Board:
Kapila K. Anand, Chair
Steven E. Kent
Lisa Palmer
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of the Corporation and ESH REIT shares of capital stock as of April 5, 2018 by:
| > | each current director and director nominee of ESH REIT; |
| > | each of the named executive officers of ESH REIT; |
| > | each shareholder known to us to own beneficially more than 5% of the outstanding shares of the Corporation and ESH REIT shares of capital stock; and |
| > | all of the executive officers and current directors of ESH REIT as a group. |
Percentage of class beneficially owned is based on 190,471,604 Paired Shares, 250,493,583 shares of Class A common stock of ESH REIT and 7,133 shares of Corporation voting preferred stock outstanding as of April 5, 2018.
No individual entity owns, actually or constructively, more than 9.8% of the Paired Shares, as provided in the respective charters of the Corporation and ESH REIT.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities that the table names have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Paired Shares issuable upon the settlement of restricted stock units occurring within 60 days of the date of this Proxy Statement are deemed to be outstanding and to be beneficially owned by the person holding the restricted stock units for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, the business address for each of our beneficial owners is c/o Extended Stay America, Inc., 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277:
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| CORPORATION
|
ESH REIT†
|
|||||||||||||||||||||||||||||||||||||||
| Shares of Common Stock Beneficially Owned |
Shares of Voting Preferred Stock Beneficially Owned |
Shares of Class B Common Stock Beneficially Owned |
Total Shares of ESH REIT Common Stock Beneficially Owned |
Paired Shares Beneficially Owned |
||||||||||||||||||||||||||||||||||||
| Name and Address
|
Number
|
Percent
|
Number
|
Percent
|
Number
|
Percent
|
Number
|
Percent
|
Number
|
Percent
|
||||||||||||||||||||||||||||||
| The Vanguard Group(1)
|
15,965,287 | 8.4% | – | – | 15,965,287 | 8.4% | 15,965,287 | 3.6% | 15,965,287 | 8.4% | ||||||||||||||||||||||||||||||
| Jonathan S. Halkyard(2)
|
398,040 | * | – | – | 398,040 | * | 398,040 | * | 398,040 | * | ||||||||||||||||||||||||||||||
| John R. Dent
|
20,495 | * | – | – | 20,495 | * | 20,495 | * | 20,495 | * | ||||||||||||||||||||||||||||||
| Howard J. Weissman
|
24,550 | * | – | – | 24,550 | * | 24,550 | * | 24,550 | * | ||||||||||||||||||||||||||||||
| James G. Alderman Jr.
|
3,435 | * | – | – | 3,435 | * | 3,435 | * | 3,435 | * | ||||||||||||||||||||||||||||||
| Douglas G. Geoga(3)
|
488,898 | * | 7 | * | 488,898 | * | 488,898 | * | 488,898 | * | ||||||||||||||||||||||||||||||
| Kapila K. Anand
|
10,363 | * | – | – | 10,363 | * | 10,363 | * | 10,363 | * | ||||||||||||||||||||||||||||||
| Bruce Haase
|
– | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Neil Brown
|
19,060 | * | – | – | 19,060 | * | 19,060 | * | 19,060 | * | ||||||||||||||||||||||||||||||
| Steven Kent
|
5,668 | * | – | – | 5,668 | * | 5,668 | * | 5,668 | * | ||||||||||||||||||||||||||||||
| Lisa Palmer
|
34,651 | * | – | – | 34,651 | * | 34,651 | * | 34,651 | * | ||||||||||||||||||||||||||||||
| Geraldo I. Lopez(4)
|
249,356 | * | – | – | 249,356 | * | 249,356 | * | 249,356 | * | ||||||||||||||||||||||||||||||
| All directors and executive officers of the Corporation, as a group (11 persons)
|
1,029,710 | * | 7 | * | 1,029,710 | * | 1,029,710 | * | 1,029,710 | * | ||||||||||||||||||||||||||||||
| † | 100% of the Class A common stock of ESH REIT or 250,493,583 shares of Class A common stock is held by the Corporation. |
| * | Less than 1%. |
| (1) | The Vanguard Group filed a Schedule 13G with the Securities and Exchange Commission on February 8, 2018 to report beneficial ownership of 15,965,287 Paired Shares held by The Vanguard Group as of December 31, 2017. The Vanguard Group reports that it has the sole power to vote with respect to 104,355 Paired Shares, shared power to vote with respect to 34,083 shares, and the sole power to dispose of 15,842,596 such Paired Shares and shared power to dispose of 122,691 such Paired Shares. The address for The Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355. |
| (2) | Mr. Halkyard owns 10,000 of the Paired Shares included in the table through the Halkyard Family Trust. Mr. Halkyard serves as the trustee of the Halkyard Family Trust. |
| (3) | Mr. Geoga owns 353,276 of the Paired Shares and 7 shares of voting preferred stock through the Douglas Geoga Family Dynasty Trust. Michelle J. Geoga and Michael E. Dowdle, as the co-trustees of the Douglas Geoga Family Dynasty Trust, share the power to vote and invest the Paired Shares and shares of voting preferred stock, but each disclaims beneficial ownership of such securities. Mr. Geoga may be deemed to beneficially own the securities but disclaims beneficial ownership of such securities. |
| (4) | Mr. Lopez resigned as President, Chief Executive Officer and director of ESH REIT effective January 1, 2018. Holdings shown are as reported by Mr. Lopez to ESH REIT on April 5, 2018. |
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| reference materials |
Section 16(a) of the Exchange Act requires our executive officers and directors and each person who owns more than 10% of our outstanding Class B common stock, to file reports of their stock ownership and changes in their ownership of our common stock with the SEC and the NYSE. These same people must also furnish us with copies of these reports and representations made to us that no other reports were required. We have performed a general review of such reports and amendments thereto filed in 2017. Based solely on our review of the copies of such reports furnished to us and inquiries we have made, as appropriate, to our knowledge all of our Section 16 officers and directors, and other persons who owned more than 10% of our outstanding Class B common stock, fully complied with the reporting requirements of Section 16(a) during 2017, except for two Form 4 filings for Mr. Lopez, each reporting one transaction, filed on September 22, 2017, which were due on February 23, 2017 and September 18, 2017.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transaction Policy
Our Board has adopted a Related Party Transaction Policy, which is designed to monitor and ensure the proper review, approval, ratification and disclosure of related party transactions involving us. This policy applies to any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeds $120,000, and in which any related party had, has or will have a direct or indirect material interest. The Audit Committee of the Board must review proposed related party transactions and may approve and ratify a related party transaction if such transaction is consistent with the Related Party Transaction Policy and is on terms, taken as a whole, which the Audit Committee believes are no less favorable to ESH REIT than could be obtained in an arm’s-length transaction with an unrelated third party, unless the Audit Committee otherwise determines that the transaction is not in the best interests of ESH REIT. Any related party transaction or modification of such transaction which the Board has approved or ratified by the affirmative vote of a majority of directors, who do not have a direct or indirect material interest in such transaction, does not need to be approved or ratified by the Audit Committee. In addition, related party transactions involving compensation will be approved by the Compensation Committee in lieu of the Audit Committee.
This section describes related party transactions between us and our directors, executive officers and 5% shareholders and their immediate family members that have occurred during the fiscal year ended December 31, 2017.
ESA Management, a subsidiary of the Corporation, incurs costs under a services agreement with the Corporation and ESH REIT for certain overhead services performed on the entities’ behalf. The services relate to executive management, accounting, financial analysis, training and technology. For the year ended December 31, 2017, ESH REIT incurred approximately $8.5 million related to this agreement.
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| reference materials |
As of December 31, 2017, ESH REIT had an outstanding net payable related to ordinary working capital of approximately $8.4 million due to the Corporation and its subsidiaries. As of December 31, 2017, this amount included certain disbursements ESA Management made on behalf of ESH REIT in the ordinary course of business and the overhead expenses described above under “Overhead Expenses.” Outstanding balances are typically repaid within 60 days.
ESH REIT’s revenues are derived from three leases. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed rental revenues are recognized on a straight-line basis. For the year ended December 31, 2017, ESH REIT recognized fixed rental revenues of approximately $476.3 million. ESH REIT recognized approximately $222.3 million of percentage rental revenues for the year ended December 31, 2017.
Future fixed rental payments to be received under noncancelable leases as of December 31, 2017, are as follows (in thousands):
|
Years Ending December 31, |
||||
| 2018 |
$ | 487,773 | ||
| 2019 |
$ | 502,406 | ||
| 2020 |
$ | 517,478 | ||
| 2021 |
$ | 533,003 | ||
| 2022 |
$ | 548,993 | ||
| Thereafter |
$ | 471,219 | ||
| Total |
$ | 3,060,872 | ||
The future fixed rental payments shown above are subject to (i) increases or decreases in the number of properties leased by ESH REIT, including as a result of asset sales and development of new properties, and (ii) re-pricing at the end of the initial term as required by applicable law regarding transfer pricing.
In ESH REIT’s consolidated financial statements, unearned rental revenues represent fixed minimum rents, which are due one-month in advance, rents receivable represents percentage rents, which are due one-month in arrears, and deferred rents receivable represents rental revenues recognized in excess of cash rents received. As of December 31, 2017, ESH REIT recorded unearned rental revenues related to January 2018 fixed minimum rent of approximately $40.5 million, rents receivable related to December 2017 percentage rent of approximately $3.7 million and deferred rents receivable of $24.4 million.
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| reference materials |
The Corporation owns all of the Class A common stock of ESH REIT, which represents approximately 57% of the outstanding shares of common stock of ESH REIT. Therefore, approximately 57% of ESH REIT’s distributions are paid to the Corporation. Distributions of approximately $132.8 million were paid from ESH REIT to the Corporation in respect of the Class A common stock of ESH REIT during the year ended December 31, 2017.
During the year ended December 31, 2017, ESH REIT issued and was compensated approximately $1.9 million for approximately 309,000 shares of Class B common stock, each of which was attached to a share of Corporation common stock to form a Paired Share, used to settle vested restricted stock units.
As of December 31, 2017, approximately 232,000 restricted stock units issued by the Corporation have vested but have not been settled, for which ESH REIT has recognized a receivable of approximately $1.4 million.
During the year ended December 31, 2017, ESH REIT repurchased and retired approximately 2.0 million shares of ESH REIT Class B common stock from certain entities affiliated with the Sponsors for approximately $12.2 million. These Paired Shares were purchased in connection with secondary offerings consummated in the first and second quarters of 2017 and pursuant to, and counted toward, the combined Paired Share repurchase program of ESH REIT.
In connection with the initial public offering, the Corporation and ESH REIT entered into a registration rights agreement with the Sponsors. Subject to certain limitations and conditions, this agreement provides the Sponsors a specified number, and in the case of short-form registrations, an unlimited number, of “demand” registrations and customary “piggyback” registration rights. The registration rights agreement also provides that the Corporation and ESH REIT will pay all expenses relating to such registrations and indemnify the Sponsor against certain liabilities which may arise under the Securities Act of 1933, as amended (the “Securities Act”).
Our CEO Pay Ratio was calculated in compliance with the requirement set forth in Item 402(u) of Regulation S-K. We estimated the ratio between the total compensation received by our CEO, Mr. Lopez, in 2017 to the median annual total compensation of all employees (other than Mr. Lopez). We used a consistently applied compensation measure across our entire employee population to calculate the median employee compensation as of December 31, 2017. For our consistently applied compensation measure we used total earnings of all associates (all of whom are full-time) employed during 2017. We then calculated the median employee’s compensation in the same manner as calculated for the named executive officers in the Summary Compensation Table. Mr. Lopez’s total compensation as reflected on the Summary Compensation Table was $2,089,852, compared to the median annual total compensation of $221,605, a ratio of 9:1.
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|
questions |
Why am I receiving these materials?
You are receiving these materials because at the close of business on April 5, 2018 (the “Record Date”), you owned shares of ESH REIT’s voting stock. All shareholders of record on the Record Date are entitled to attend and vote at the Annual Meeting.
We have two classes of capital stock that are entitled to vote at the annual meeting: ESH REIT Class B common stock, $0.01 par value per share, and ESH REIT Class A Common Stock, $0.01 par value per share. Each share of ESH REIT Class B common stock is attached to and trades as a single unit with a share of common stock of the Corporation, par value $0.01 per share, (each, a “Paired Share”). Shares of ESH REIT Class A common stock are owned by the Corporation and are not currently, and are not expected to be, registered for public sale or listed on the New York Stock Exchange (“NYSE”) or any other securities exchange.
As of the Record Date, we had 190,471,604 shares of ESH REIT Class B common stock outstanding and 250,493,583 shares of ESH REIT Class A common stock outstanding, representing approximately 56.8% of ESH REIT’s total outstanding common stock. With respect to all of the matters submitted for vote at the Annual Meeting, each share of ESH REIT Class A common stock is entitled to one vote and each share of ESH REIT Class B common stock is entitled to one vote. The ESH REIT Class A common stock and the ESH REIT Class B common stock will vote as a single class on each of the matters submitted at the Annual Meeting.
What information is contained in this Proxy Statement?
This Proxy Statement includes information about the nominees for director and other matters to be voted on at the Annual Meeting. It also explains the voting process and requirements; describes the compensation of the principal executive officer, the principal financial officer and the three other most highly compensated officers (collectively referred to as our “named executive officers”); describes the compensation of our directors; and provides certain other information that SEC rules require.
What shares are included on my proxy card?
You will receive one proxy card for all the shares of common stock that you hold as a shareholder of record (in certificate form or in book-entry form).
If you hold your shares in street name, you will receive voting instructions for each account you have with a broker, bank or other nominee.
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| frequently asked questions |
What matters am I voting on, how may I vote on each matter and how does the Board recommend that I vote on each matter?
The following table sets forth each of the proposals you are being asked to vote on, how you may vote on each proposal and how the Board recommends that you vote on each proposal:
|
Proposal |
How may I vote? |
What does the Board recommend? | ||
|
1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
You may:
> (i) vote FOR the election of all nominees named herein;
> (ii) withhold authority to vote for all such nominees; or
> (iii) vote FOR the election of all such nominees other than any nominees with respect to whom the vote is specifically withheld by indicating in the space provided on the proxy.
|
The Board recommends that you vote FOR all seven of the director nominees. | ||
|
2. An advisory vote on ESH REIT’s executive compensation. |
You may vote FOR or AGAINST the approval, on an advisory basis, of ESH REIT’s executive compensation, or you may indicate that you wish to ABSTAIN from voting on the matter.
|
The Board recommends that you vote FOR the approval, on an advisory basis, of ESH REIT’s executive compensation. | ||
|
3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
You may vote FOR or AGAINST the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, or you may indicate that you wish to ABSTAIN from voting on the matter.
|
The Board recommends that you vote FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
What is the difference between holding shares as a shareholder of record and as a beneficial owner?
If your shares are registered directly in your name with ESH REIT’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered the “shareholder of record” with respect to those shares. The full set of proxy materials would have been sent directly to you.
If your shares are held with a broker or in an account at a bank, you are considered the “beneficial owner” with respect to those shares. These shares are sometimes referred to as being held “in street name.” The full set of proxy materials have been forwarded to you by your broker, bank or other holder of record who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by using the voting instruction card included in the mailing or by following the instructions on the enclosed form of proxy for voting by telephone. You will not be able to vote these shares directly unless you obtain a signed legal proxy from your broker, bank or other nominee giving you the right to vote the shares.
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| frequently asked questions |
How do I vote if I am a shareholder of record?
As a shareholder of record, you may vote your shares in any one of the following ways:
> Vote on the Internet on the website shown on the proxy card;
> Call the toll-free number shown on the proxy card;
> Mark, sign, date and return the enclosed proxy card in the postage-paid envelope; or
> Vote in person at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we urge you to vote. Returning the proxy card or voting by telephone will not affect your right to attend the Annual Meeting and vote in person.
How do I vote if I am a beneficial owner?
As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares by following the instructions that your broker, bank or other nominee sent to you. You will receive proxy materials and voting instructions for each account that you have with a broker, bank or other nominee. As a beneficial owner, if you wish to change the directions that you have provided your broker, bank or other nominee, you should follow the instructions that your broker, bank or other nominee sent to you.
As a beneficial owner, you are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a signed legal proxy from your broker, bank or other nominee giving you the right to vote the shares.
How can I attend the Annual Meeting?
You are entitled to attend the Annual Meeting only if you were a shareholder of record as of the Record Date or you hold a valid proxy for the Annual Meeting as described in the previous question. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. You should be prepared to present photo identification for admittance. If you are not a shareholder of record but hold shares as a beneficial owner, you should provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to April 5, 2018, a copy of the voting instruction card provided by your broker, bank or other nominee, or other similar evidence of ownership. You may contact us via the Internet or by telephone at (980) 345-1600 to obtain directions to vote in person at the Annual Meeting.
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What can I do if I change my mind after I vote?
If you are a shareholder of record, you can revoke your proxy before it is exercised by:
| > | written notice of revocation to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277; |
| > | timely delivery of a valid, later-dated proxy or a later-dated vote by telephone; or |
| > | attending the Annual Meeting and voting in person by ballot. |
If you are a beneficial owner of shares but not the record holder, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the question “How do I vote if I am a beneficial owner?” above. All shares that have been properly voted and not revoked will be voted at the Annual Meeting.
What if I return my proxy card or vote by Internet or phone but do not specify how I want to vote?
If you are a shareholder of record and sign and return your proxy card or complete the Internet or telephone voting procedures, but do not specify how you want to vote your shares, we will vote them as follows:
| > | FOR the election of the director nominees. |
| > | FOR the approval, on an advisory basis, of ESH REIT’s executive compensation. |
| > | FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
What votes need to be present to hold the Annual Meeting?
Under our Amended and Restated Bylaws, a quorum will exist at the Annual Meeting if shareholders holding a majority of the shares entitled to vote at the Annual Meeting are present in person or by proxy. Shareholders of record who return a proxy or vote in person at the meeting will be considered part of the quorum. Abstentions are counted as “present” for determining a quorum. Uninstructed broker votes, also called “broker non-votes,” are also counted as “present” for determining a quorum so long as there is at least one matter that a broker may vote on without specific instructions from a beneficial owner. See “What is the effect of broker non-votes?” below.
How are votes counted?
In the election of directors, your vote may be cast “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. If you withhold your vote with respect to any nominee, your shares will not be considered to have been voted for or against the nominee. For all other proposals, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote “AGAINST.” If you sign your proxy card with no further instructions and you are a shareholder of record, then your shares will be voted in accordance with the recommendations of our Board. If you sign your proxy card with no further instructions and you are a beneficial owner, then please see the response to the question immediately below for a description of how your shares will be voted.
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What is the effect of broker non-votes?
Under the rules of the NYSE, if you are a beneficial owner, your broker, bank or other nominee only has discretion to vote on certain “routine” matters without your voting instructions. The proposal to ratify Deloitte & Touche LLP as our independent registered public accounting firm is considered a routine matter. However, the election of directors and the advisory vote on our executive compensation are not considered routine matters. Accordingly, your broker, bank or other nominee will not be permitted to vote your shares on these matters unless you provide proper voting instructions.
What is the voting requirement to approve each of the proposals?
The following table sets forth the voting requirements with respect to each proposal:
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Proposal
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Voting Requirement
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| 1. The election of the seven director nominees identified in this Proxy Statement each for a one-year term or until his or her successor is duly elected and qualified. |
In an election where the number of director nominees does not exceed the number of directors to be elected, each director must be elected by a majority of the votes cast. In an election where the number of director nominees exceeds the number of directors to be elected, then director nominees shall be elected by a plurality of the votes cast. If any director fails to receive a majority of the votes cast in an uncontested election, our Corporate Governance Guidelines require that the director tender his or her resignation, which the Board may then accept or reject.
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2. An advisory vote on ESH REIT’s executive compensation. |
To be approved, on an advisory basis, this proposal must be approved by a majority of the votes cast by the shareholders present in person or by proxy, meaning that the votes cast by the shareholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal.
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3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. |
To be approved, this proposal must be approved by a majority of the votes cast by the shareholders present in person or by proxy, meaning that the votes cast by the shareholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal.
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Other matters that may properly come before the Annual Meeting may require more than a majority vote under our Amended and Restated Bylaws, our Amended and Restated Certificate of Incorporation, the laws of Delaware or other applicable laws.
Who will count the votes?
A representative of American Stock Transfer & Trust Company, LLC will act as the inspector of elections and count the votes.
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Where can I find the voting results?
We will announce the preliminary voting results at the Annual Meeting. We will also publish voting results in a current report on Form 8-K that we will file with the SEC within four business days following the meeting. If on the date of this filing the inspectors of election for the Annual Meeting have not certified the voting results as final, we will note in the filing that the results are preliminary and publish the final results in a subsequent Form 8-K filing within four business days after the final voting results are known.
Who will pay the costs of soliciting these proxies?
We will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this Proxy Statement, the proxy card and any additional information furnished to shareholders. Copies of solicitation materials will be furnished to banks, brokers and other nominees holding shares of voting stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of voting stock for their reasonable costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies may be supplemented by electronic means, mail, facsimile, telephone, or personal solicitation by our directors, officers or other employees. No additional compensation will be paid to our directors, officers or other employees for such services.
Are you “householding” for shareholders sharing the same address?
The SEC’s rules permit us to deliver a single copy of this Proxy Statement and our 2016 Annual Report to an address that two or more shareholders share. This method of delivery is referred to as “householding” and can significantly reduce our printing and mailing costs. It also reduces the volume of mail that you receive. We will deliver only one Proxy Statement and 2017 Annual Report to multiple registered shareholders sharing an address, unless we receive instructions to the contrary from one or more of the shareholders. We will still send each shareholder an individual proxy card.
If you did not receive an individual copy of this Proxy Statement or our 2017 Annual Report, we will send copies to you if you contact us at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277, (980) 345-1600, Attention: General Counsel and Corporate Secretary. If you and other residents at your address have been receiving multiple copies of this Proxy Statement or our 2017 Annual Report, and wish to receive only a single copy of these materials, you may contact your broker, bank or other nominee or contact us at the above address or telephone number.
What is the deadline under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, for shareholders to propose actions for consideration at the 2019 annual meeting of shareholders?
December 16, 2018 is the deadline for shareholders to submit proposals to be included in our proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Proposals by shareholders must comply with all requirements of applicable rules of the SEC, including Rule 14a-8, and be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with Rule 14a-8 and other applicable requirements.
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What is the deadline under our Amended and Restated Bylaws for shareholders to nominate persons for election to the Board or propose other matters to be considered at our 2019 annual meeting of shareholders?
Shareholders who wish to nominate persons for election to our Board or propose other matters to be considered at our 2019 annual meeting of shareholders must provide us advance notice of the director nomination or shareholder proposal, as well as the information specified in our Amended and Restated Bylaws, no earlier than January 16, 2019 and no later than February 15, 2019. Shareholders are advised to review our Amended and Restated Bylaws, which contain the requirements for advance notice of director nominations and shareholder proposals. Notice of director nominations and shareholder proposals must be mailed to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277. The requirements for advance notice of shareholder proposals under our Amended and Restated Bylaws do not apply to proposals properly submitted under Rule 14a-8 under the Exchange Act, as those shareholder proposals are governed by Rule 14a-8. We reserve the right to reject, rule out of order or take other appropriate action with respect to any director nomination or shareholder proposal that does not comply with our Amended and Restated Bylaws and other applicable requirements.
Whom should I call if I have any questions?
If you have any questions about the Annual Meeting or your ownership of Corporation voting stock, please contact our transfer agent at:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Telephone: (800) 937-5449
Website Address: www.amstock.com
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Incorporation by Reference
The Audit Committee Report and Compensation Committee Report shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. In addition, the website addresses contained in this Proxy Statement are intended to provide inactive, textual references only. The information on these websites is not part of this Proxy Statement.
Access to Reports and Other Information
We file or furnish our combined annual reports on Form 10-K, combined quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and other documents electronically with the SEC under the Exchange Act. You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain such reports from the SEC’s website at www.sec.gov.
Our website is www.esa.com. Our combined annual reports on Form 10-K, combined quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on the investor relations section of our website at www.aboutstay.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The Corporate Governance Guidelines, Code of Business Conduct and Ethics and Board committee charters are also available on the investor relations section of our website at www.aboutstay.com under the headings “Corporate Governance—Extended Stay America—Governance Documents.” We will provide, free of charge, a copy of any of our corporate documents listed above upon written request to our General Counsel and Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277.
List of Corporation Shareholders
A list of our shareholders as of April 5, 2018, the record date for the Annual Meeting, will be available for inspection at our corporate headquarters during ordinary business hours throughout the 10-day period prior to the Annual Meeting. The list of shareholders will also be available for such examination at the Annual Meeting.
Other Matters That May Come Before the Annual Meeting
We do not know of any other matters that will be considered at the Annual Meeting. However, if any other proper business should come before the meeting, the persons named in the proxy card will have discretionary authority to vote according to their best judgment to the extent permitted by applicable law.
| By Order of the Board of Directors, |
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| John R. Dent |
Charlotte, North Carolina | |
| General Counsel and Corporate Secretary |
April 16, 2018 |
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www.ESA.com
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EXTENDED STAY AMERICA, INC. 11525 N. COMMUNITY HOUSE RD., SUITE 100 CHARLOTTE, NC 28277 VOTE BY INTERNET—www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE—1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E45367-P08672 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. EXTENDED STAY AMERICA, INC. For All Withhold All Except For All The Board of Directors recommends you vote “FOR ALL” on proposal 1. To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 1. To elect as Directors of Extended Stay America, Inc. the ! nominees listed below: Nominees: 01) Jonathan S. Halkyard 05) Richard F. Wallman 02) Douglas G. Geoga 06) Jodie W. McLean 03) Kapila K. Anand 07) Ellen Keszler 04) Thomas F. O’Toole The Board of Directors recommends you vote “FOR” proposals 2 and 3. For Against Abstain 2. The approval, on an advisory basis, of the Corporation’s executive compensation ! ! ! 3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018 ! ! ! NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Proxy Statement and 2017 Annual Report, which includes our combined annual report on Form 10-K for the year ended December 31, 2017, are available free of charge on the Investor Relations section of our website (www.aboutstay.com) or at www.proxyvote.com. E45368-P08672 EXTENDED STAY AMERICA, INC. This proxy is being solicited by the Board of Directors for the Annual Meeting of Shareholders on May 16, 2018 8:00 AM The shareholder(s) of Extended Stay America, Inc. (the “Corporation”) referenced on the reverse side hereof hereby appoints Jonathan S. Halkyard and John R. Dent, jointly and severally with full power of substitution, as proxies to represent and vote all of the shares of the Corporation’s voting stock the shareholder(s) referenced on the reverse side hereof is entitled to vote at the Annual Meeting of Shareholders of the Corporation to be held on the 16th day of May, 2018, and at any and all adjournments thereof, on all matters coming before said meeting. The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, this proxy will be voted on as “FOR ALL” on the election of the director nominees; “FOR” the approval, on an advisory basis, of the Corporation’s executive compensation; and “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion. Continued and to be signed on reverse side
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ESH HOSPITALITY, INC. 11525 N. COMMUNITY HOUSE RD., SUITE 100 CHARLOTTE, NC 28277 VOTE BY INTERNET—www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE—1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E45369-P08672 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY ESH HOSPITALITY, INC. The Board of Directors recommends you vote “FOR ALL” on proposal 1. 1. To elect as Directors of ESH Hospitality, Inc. the nominees listed below: Nominees: 01) Jonathan S. Halkyard 05) Steven E. Kent 02) Douglas G. Geoga 06) Lisa Palmer 03) Kapila K. Anand 07) Bruce N. Haase 04) Neil T. Brown For All Withhold All Except For All To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. The Board of Directors recommends you vote “FOR” proposals 2 and 3. 2. The approval, on an advisory basis, of ESH REIT’s executive compensation 3. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018 NOTE: Such other business as may properly come before the meeting or any adjournment thereof. For Against Abstain Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Proxy Statement and 2017 Annual Report, which includes our combined annual report on Form 10-K for the year ended December 31, 2017, are available free of charge on the Investor Relations section of our website (www.aboutstay.com) or at www.proxyvote.com. E45370-P08672 ESH HOSPITALITY, INC. This proxy is being solicited by the Board of Directors for the Annual Meeting of Shareholders on May 16, 2018 8:30 AM The shareholder(s) of ESH Hospitality, Inc. (“ESH REIT”) referenced on the reverse side hereof hereby appoints Jonathan S. Halkyard and John R. Dent, jointly and severally with full power of substitution, as proxies to represent and vote all of the shares of ESH REIT’s voting stock the shareholder(s) referenced on the reverse side hereof is entitled to vote at the Annual Meeting of Shareholders of ESH REIT to be held on the 16th day of May, 2018, and at any and all adjournments thereof, on all matters coming before said meeting. The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, this proxy will be voted on as “FOR ALL” on the election of the director nominees; “FOR” the approval, on an advisory basis, of ESH REIT’s executive compensation; and “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion. Continued and to be signed on reverse side