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Acquisitions
 3 Months Ended
Mar. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
August 2022 Radisson Hotels Americas Acquisition
On August 11, 2022, the Company completed the acquisition of Radisson Hotels Americas. The accounting purchase price for the Transaction was $673.9 million, which includes the base purchase price of $675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. To fund the Transaction, Choice drew $175.0 million on the Company's existing senior unsecured credit facility, and funded the remainder with cash on hand.
Additionally, in connection with the acquisition, we recorded $10.4 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three months ended March 31, 2023.
Preliminary Fair Values of Assets Acquired and Liabilities Assumed
The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets acquired and liabilities assumed as of August 11, 2022. These preliminary fair values are based on management’s estimates and assumptions, using the best information available at the time of this filing.
During the fourth quarter of 2022 and first quarter of 2023, the Company recorded net measurement period adjustments that revised goodwill by a $9.1 million reduction and $1.5 million increase, respectively, as presented in the table below. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. The measurement period adjustments resulted in no impact to our consolidated statements of income.
The final valuation and related allocation of the purchase price will be completed no later than 12 months after the closing date. The final acquisition accounting adjustments may be materially different and may include (1) changes in fair value of property and equipment and associated salvage values, (2) changes in allocations to intangible assets, such trade names, acquired
franchise and management agreements, above and below market leases, as well as goodwill; and (3) other changes to assets and liabilities, such as working capital.
The preliminary allocation of the purchase price, including measurement period adjustments, as presented in our consolidated balance sheets:
(in thousands)August 11, 2022 - originalMeasurement Period Adj - 4th quarter 2022Measurement Period Adj - 1st quarter 2023August 11, 2022 - as adjusted
Cash and cash equivalents$113,023 $— $— $113,023 
Restricted cash10,403 — — 10,403 
Accounts receivable32,972 8,752 (1,941)39,783 
Notes receivable - current1,709 — (860)849 
Prepaid expenses and other current assets8,139 — — 8,139 
Property and equipment125,441 — — 125,441 
Operating lease right-of-use of assets42,315 (2,016)— 40,299 
Intangible assets447,400 (300)— 447,100 
Notes receivable - noncurrent2,592 — — 2,592 
Investment in affiliates471 — — 471 
Other assets2,129 — — 2,129 
Total assets acquired$786,594 $6,436 $(2,801)$790,229 
Accounts payable$8,295 $(1,566)$(1,941)$4,788 
Accrued expenses and other current liabilities15,987 425 674 17,086 
Deferred revenue - current(1)
5,745 1,566 — 7,311 
Liability for guest loyalty program - current(1)
3,542 3,792 — 7,334 
Long-term debt55,975 — — 55,975 
Long-term deferred revenue(1)
26,499 (3,915)— 22,584 
Deferred compensation and retirement plan obligations9,265 — — 9,265 
Operating lease liabilities42,705 (2,016)— 40,689 
Liability for guest loyalty program - noncurrent(1)
10,180 (1,443)— 8,737 
Other liabilities3,052 543 — 3,595 
Total liabilities assumed$181,245 $(2,614)$(1,267)$177,364 
Fair value of net assets acquired$605,349 $9,050 $(1,534)$612,865 
Goodwill68,507 (9,050)1,534 60,991 
Total purchase consideration$673,856 $— $— $673,856 
(1) The Deferred revenue (including deferred affiliation fees) and Liability for guest loyalty program balances were assumed at their carrying value at the date of the acquisition pursuant to the application of ASU 2021-08. Refer to Note 1.
Property and Equipment
The following table presents the preliminary estimates of fair value of the acquired property and equipment, which is primarily concentrated at three acquired hotel properties, and their estimated weighted average remaining useful lives.
Estimated Useful LifeEstimated Fair Value
(in years)(in thousands)
LandN/A$7,159 
Construction in progressN/A3,190 
Building and leasehold improvements24.493,934 
Site improvements 23.1586 
Furniture, fixtures and equipment3.98,334 
Computer equipment and software2.012,238 
Total$125,441 
We provisionally estimated the value of the property and equipment through a combination of income, cost and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income
growth, discount rates, capitalization rates and capital expenditure needs of the hotels. We are continuing to assess the marketplace assumptions and property conditions, which could result in changes to these provisional values.
Identified Intangible Assets
The following table presents our preliminary estimates of the fair value of the acquired identified intangible assets and their estimated useful lives:
Estimated Useful LifeEstimated Fair Value
(in years)(in thousands)
Trade namesN/A$223,700 
Franchise agreements15.5220,100 
Management agreements15.53,300 
Total$447,100 
The fair value of the trade names was provisionally estimated using the relief-from-royalty method. This method applies an estimated royalty rate to forecasted future cash flows, discounted to present value. The fair value of the franchise and management agreements was preliminarily estimated using a multi-period excess earnings method, a variation of the income approach. This method uses the present value of incremental after-tax cash flows attributable to the intangible asset to estimate fair value. These valuation methodologies utilize Level 3 assumptions, and we are continuing to assess the assumptions used in estimating these values as well as the respective useful lives, which could result in changes to these provisional values.
Debt Assumed
As part of the Transaction, we assumed a mortgage related to an acquired hotel property. The mortgage had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024. Subsequent to the acquisition closing date, the mortgage, inclusive of the outstanding interest and fees, was repaid in full in the amount of $56.0 million using cash we acquired. Additionally, the interest rate cap agreement was terminated, which resulted in a payment to Choice in the amount of $1.9 million. Related to the mortgage, we acquired $10.4 million in restricted cash, for which restrictions were lifted upon repayment.
Operating Leases
The Company measured operating lease liabilities assumed at the present value of remaining payments as of the acquisition date, discounted using Choice's applicable incremental borrowing rate, in accordance with Leases (Topic 842). The corresponding right-of-use assets acquired were measured at the value of the lease liabilities, further adjusted for favorable or unfavorable lease terms as compared to market terms. We are continuing to assess market assumptions, which could change our preliminary estimate.
Income Taxes
Pursuant to the terms of the Transaction, the parties agree to jointly make a valid, timely election under Section 338(h)(10) of the U.S. Internal Revenue Code and under any similar provisions of state or local law with respect to the purchase of the shares of Radisson Hotels Americas. Under this election, the parties agreed to treat the Transaction for federal income tax purposes as if it had been structured as an asset sale and purchase. As a result of this election, the tax basis of the assets acquired and liabilities assumed by Choice were reset to fair value at the time of the acquisition, which results in the elimination of previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill. Because the accounting for the Transaction is ongoing, the resulting deferred tax balances are still being finalized.
Pro Forma Results of Operations
The following unaudited pro forma information presents the combined results of operations of Choice and Radisson Hotels Americas as if we had completed the Transaction on January 1, 2021, but using our preliminary fair values of assets acquired and liabilities assumed as of the acquisition date. The unaudited pro forma information reflects adjustments relating to (i) the allocation of purchase price and related adjustments, including incremental depreciation and amortization expense based on the preliminary fair values of the property and equipment assets and intangible assets acquired; (ii) the incremental impact of the
Revolver draw on interest expense and amortization of financing costs; (iii) nonrecurring transaction costs; and (iv) income tax impact of the aforementioned pro forma adjustments.
As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the transaction had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
Three Months Ended
(in thousands)March 31, 2022
Revenues$311,469 
Net income63,700 
Radisson Hotels Americas Results of Operations
The results of Radisson Hotels Americas have been consolidated with the Company since August 11, 2022 and are included in the Company’s Consolidated Statement of Income for the three months ended March 31, 2023. The following table presents these results.
Three Months Ended
(in thousands)March 31, 2023
Revenues$62,383 
Net income3,273 
Goodwill
The $61.0 million excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in RevPAR, cost synergies and new agreements signed with new franchisees and developers. Goodwill for the Transaction is fully attributable to the Hotel Franchising & Management reportable segment and is fully deductible for tax purposes.
The following table details the carrying amount of the Company's goodwill, including goodwill arising from the acquisition of Radisson Hotels Americas, as of March 31, 2023.
(in thousands)
Goodwill, excluding goodwill arising from Radisson Hotels Americas acquisition$166,774 
Accumulated impairment losses(7,578)
Goodwill arising from Radisson Hotels Americas acquisition60,991 
Goodwill, net carrying amount$220,187