Investments in Unconsolidated Entities

12 Months Ended

Dec. 31, 2016

Equity Method Investments and Joint Ventures [Abstract]

The Company maintains a portfolio of investments owned through noncontrolling interests in equity method investments with one or more partners. Investments in unconsolidated entities include investments in joint ventures totaling $91.9 million and $64.3 million at December 31, 2016 and 2015, respectively, that the Company has determined to be variable interest entities ("VIEs"). These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria hotels and suites in strategic markets. Based on an analysis of who has the power to direct the activities that most significantly impact these entities performance and who has an obligation to absorb losses of these entities or a right to receive benefits from these entities that could potentially be significant to the entity, the Company has determined that it is not the primary beneficiary of any of its VIEs. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements. Although the Company is not the primary beneficiary of these VIEs, it does exercise significant influence through its equity ownership and as a result the Company's investment in these entities is accounted for under the equity method. For the years ended December 31, 2016 and 2015, the Company recognized losses totaling $1.3 million and $2.0 million from the investment in these entities, respectively. The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain guarantees as described in Note 26 "Commitments and Contingencies" of these financial statements.

Equity method investment ownership interests at December 31, 2016 and 2015 are as follows:



	Ownership Interest
Equity Method Investment	December 31, 2016		December 31, 2015
Main Street WP Hotel Associates, LLC	50	%	50	%
FBC-CHI Hotels, LLC	40	%	40	%
CS Hotel 30W46th, LLC	25	%	25	%
CS Brickell, LLC	50	%	50	%
CS Maple Grove, LLC	50	%	50	%
CS Hotel West Orange, LLC	50	%	50	%
Hotel JV Services, LLC*	16	%	16	%
City Market Hotel Development, LLC	43	%	43	%
CS at Phoenix, LLC	—	%	50	%
CS Woodlands, LLC	50	%	50	%
926 James M. Wood Boulevard, LLC	75	%	—	%
CS Dallas Elm, LLC	45	%	—	%
Choice Hotels Canada, Inc.*	50	%	50	%

*Non-variable interest entity investments

The following tables present summarized financial information for all unconsolidated ventures in which the Company holds an investment that is accounted for under the equity method.



	Year Ended December 31,
	2016		2015			2014
	(in thousands)
Revenues	$	72,393	$	44,015		$	30,608
Operating income (loss)	9,878		1,196			(2,533		)
Income from continuing operations	4,603		(2,382		)	(3,616		)
Net income (loss)	4,598		(2,382		)	(4,670		)



	As of December 31,
	2016		2015
	(in thousands)
Current assets	$	47,294	$	44,951
Non-current assets	346,550		257,022
Total assets	$	393,844	$	301,973

Current liabilities	$	22,274	$	22,217
Non-current liabilities	143,769		104,344
Total liabilities	$	166,043	$	126,561

Transactions with Unconsolidated Joint Ventures

In December 2012, the Company entered into a $19.5 million promissory note with a development company which is a member in one of the Company's unconsolidated joint ventures which is engaged in the construction of a Cambria hotel and suites of which the Company is also a member. The proceeds from the promissory note were utilized to partially finance the construction of the Cambria hotel and suites by the joint venture.

The promissory note matures in two tranches with $9.5 million of the promissory note maturing during the year ended December 31, 2013 and the remaining $10.0 million maturing on the fifth anniversary date of the promissory note. The promissory note bears interest at a fixed rate which increased from 6% to 8% after the completion of the hotel construction in November 2015. Interest was payable quarterly during the hotel construction and monthly, thereafter. During the year ended December 31, 2013, the Company was repaid the first tranche of the promissory note or $9.5 million. During the year ended December 31, 2016, the Company was repaid the second tranche of the promissory note or $10.0 million.

In July 2014, the Company sold a parcel of land to a development company which is a member in one of the Company's unconsolidated joint ventures for $6.5 million in exchange for cash and an equity investment in the development joint venture. No gain or loss was recognized on the sale. The development company is an unconsolidated limited liability company whose sole business and purpose is to develop and operate Cambria hotel & suites hotels.

In May 2015, the Company entered into a $4.0 million promissory note with an individual who is a member of one of the Company’s unconsolidated joint ventures. The proceeds of the promissory note are being utilized to develop and operate a Cambria hotel & suites. The promissory note matures on April 30, 2018 and bears interest at variable rates, and is payable monthly. At December 31, 2016, the outstanding balance of the promissory note totaled $3.0 million.

In August 2015, the Company entered into a $24.4 million promissory note with a development company which is a member of one of the Company’s unconsolidated joint ventures. In October 2016, the Company increased the loan and funded an additional $1.0 million. The Company has advanced a total of $25.4 million as of December 31, 2016. The promissory note matures on September 3, 2023, bears interest at variable rates, and is payable monthly.

In March 2016, the Company entered into a $4.0 million promissory note with an individual who is a member of one of the Company's unconsolidated joint ventures. The Company advanced $4.0 million for the member to purchase the Company's interest in the unconsolidated joint venture for $2.4 million and fund the development of the property into a Cambria hotel & suites hotel. A deferred gain of $0.2 million will be recognized when the promissory note matures on March 1, 2019. The promissory note bears interest at a fixed rate and is payable monthly.

The Company signed a management fee arrangement for marketing services with a joint venture partner. For the year ended December 31, 2016, fees earned and payroll costs reimbursed under this arrangement totaled $0.8 million.

The Company has entered into franchise agreements with certain of the unconsolidated joint ventures listed within Note 8. Pursuant to these franchise agreements, the Company has recorded royalty and marketing and reservation system fees of approximately $17.3 million, $15.5 million and $15.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. The Company has recorded $1.1 million and $1.1 million as a receivable due from these joint ventures as of December 31, 2016 and 2015, respectively. In addition, the Company has paid commissions of $0.2 million, $0.4 million, and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively, to an online travel agent for which the Company is a joint venture member.