Transactions with Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

Transactions with Unconsolidated Joint Ventures

Investments in Unconsolidated Entities

The Company maintains a portfolio of investments owned through noncontrolling interests in equity method investments with one or more partners. The Company has equity method investments in joint ventures that represent variable interest entities ("VIEs") totaling $103.0 million and $130.2 million on the consolidated balance sheets at December 31, 2018 and 2017, respectively. These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels 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 these 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, 2018, 2017 and 2016, the Company recognized losses totaling $8.0 million, $7.1 million and $1.3 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 guaranties as described in Note 24 of these financial statements.

Equity method investment ownership interests at December 31, 2018 and 2017 are as follows:



	Ownership Interest
Equity Method Investment	December 31, 2018		December 31, 2017
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 ⁽¹⁾	16	%	16	%
City Market Hotel Development, LLC	43	%	43	%
CS Woodlands, LLC	50	%	50	%
926 James M. Wood Boulevard, LLC	75	%	75	%
CS Dallas Elm, LLC	45	%	45	%
Choice Hotels Canada, Inc. ⁽¹⁾	50	%	50	%
CS 433 Mason LLC ⁽²⁾	100	%	90	%
Pine Street Long Beach LLC	50	%	50	%
SY Valley Vineyard Resorts LLC	50	%	50	%
CS Lakeside Santa Clara LLC	50	%	—	%
CS Main Pleasant Hill LLC	50	%	—	%

⁽¹⁾Non-variable interest entity investments

⁽²⁾During the third quarter of 2018, a partner in a VIE previously accounted for under the equity method of accounting exercised a put option to the Company for its membership interest. As a result, the Company paid $3.2 million for the remaining interest and the purchase was accounted for as an asset acquisition. The financial results of the 100% owned entity have been consolidated in the Company's financial statements since August 9, 2018.

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,
	2018		2017⁽³⁾		2016
	(in thousands)
Revenues	$	118,324	$	87,033	$	72,393
Operating income	11,790		8,171		9,878
Income from continuing operations	1,658		2,140		4,603
Net income	$	477	$	940	$	4,598

⁽³⁾Updated based on most recent data available



	As of December 31,
	2018		2017
	(in thousands)
Current assets	$	75,453	$	56,599
Non-current assets	465,361		491,388
Total assets	$	540,814	$	547,987

Current liabilities	$	32,234	$	31,191
Non-current liabilities	239,581		222,156
Total liabilities	$	271,815	$	253,347

Transactions with Unconsolidated Joint Ventures

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, 2018. The promissory note matures on September 3, 2023, bears interest at variable rates, and is payable monthly.

In October 2017, May 2018, and December 2018, the Company entered into three promissory notes with a total principal of $22.2 million with a development company which is a member of one of the Company's unconsolidated joint ventures formed in 2018. The promissory notes mature in January 2019, May 2019 and December 2019, bear interest at fixed and variable rates, and are payable monthly. At December 31, 2018, the outstanding balance of the promissory notes totaled $21.9 million.

The Company signed a management fee arrangement for marketing services with a joint venture partner. For the years ended December 31, 2018, 2017 and 2016, fees earned and payroll costs reimbursed under this arrangement totaled $1.7 million, $1.4 million and $0.8 million, respectively.

The Company entered into franchise agreements with certain of the unconsolidated joint ventures listed within Note 8. Pursuant to these franchise agreements, the Company recorded royalty and marketing and reservation system fees of approximately $25.4 million, $22.4 million, and $17.3 million, for the years ended December 31, 2018, 2017 and 2016, respectively. The Company recorded $1.1 million and $1.3 million as a receivable due from these joint ventures as of December 31, 2018 and 2017, respectively. In addition, the Company paid commissions of $0.2 million, $0.2 million, and $0.2 million for the years ended December 31, 2018, 2017 and 2016, respectively, to an online travel agent for which the Company is a joint venture member.