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Acquisitions
 9 Months Ended
Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
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 and then adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. To fund the Transaction, Choice drew down $175.0 million on the Company's existing senior unsecured credit facility and then funded the remainder with cash on hand.
In connection with the acquisition, we recognized $10.9 million and $30.6 million during the three and nine months ended September 30, 2023, respectively, and $24.9 million and $29.0 million during the three and nine months ended September 30, 2022, respectively, of transaction, transition, and severance expenses which are included within Selling, general and administrative in the consolidated statements of income.
Fair Values of the Assets Acquired and the Liabilities Assumed
The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets acquired and the liabilities assumed on August 11, 2022. During the fourth quarter of 2022 and the first quarter of 2023, the Company recorded certain net measurement period adjustments that reduced goodwill by $9.1 million and increased goodwill by $1.5 million, respectively, which is presented in the table below. The Company made these measurement period adjustments to reflect the
facts and circumstances that existed as of the acquisition date and did not result from any intervening events subsequent to the acquisition 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 was completed in the third quarter of 2023.
The final allocation of the purchase price, including all measurement period adjustments, as presented in our consolidated balance sheets is as follows:
(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 on 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 estimated 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 property and equipment$125,441 
We 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 hotel properties.
Identified Intangible Assets
The following table presents the estimated fair values 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 intangible assets$447,100 
The fair value of the trade names was estimated using the relief-from-royalty method. This method applies an estimated royalty rate to the forecasted future cash flows and discounted to the present value. The fair value of the franchise and management agreements was estimated using a multi-period excess earnings method, which is a variation of the income approach. This method uses the present value of the incremental after-tax cash flows attributable to the intangible asset. These valuation methodologies utilize Level 3 assumptions.
Debt Assumed
As part of the Transaction, we assumed a mortgage loan related to an acquired hotel property. The mortgage loan had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024. Subsequent to the acquisition date, the mortgage loan and the outstanding interest and fees, was repaid in full in the amount of $56.0 million using cash we acquired in the Transaction. Additionally, the interest rate cap agreement was terminated, which resulted in a $1.9 million payment to Choice. In conjunction with assuming the mortgage loan, we acquired $10.4 million in restricted cash, for which the restrictions were lifted upon repayment of the mortgage loan.
Operating Leases
The Company measured the assumed operating lease liabilities at the present value of the remaining payments as of the acquisition date, which were discounted using Choice's applicable incremental borrowing rate in accordance with Leases (Topic 842). The corresponding acquired right-of-use assets were measured at the value of the operating lease liabilities, and then further adjusted for favorable or unfavorable lease terms as compared to market lease terms.
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 the liabilities assumed by Choice were reset to fair value on the date of the acquisition, which results in the elimination of any
previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill.
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 the Transaction was completed on January 1, 2021, but using the fair values of the assets acquired and the 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 fair values of the acquired property and equipment and intangible assets, (ii) the incremental impact of the Revolver draw on interest expense and the amortization of financing costs, (iii) nonrecurring transaction costs, and (iv) the 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 the future results of operations.
Nine Months Ended
(in thousands)September 30, 2022
Revenues$1,189,792 
Net income$304,770 
Radisson Hotels Americas Results of Operations
The Company's consolidated statements of income include Radisson Hotels Americas’ results of operations since the August 11, 2022 acquisition date. Radisson Hotels Americas contributed $40.2 million and $1.4 million in total revenues and net loss, respectively, for both the three and nine months ended September 30, 2022.
Goodwill
The $61.0 million of goodwill is primarily attributable to the value we expect to realize from the existing customer base, improvements in Revenue per Available Room ("RevPAR"), cost synergies, and new agreements signed with 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 the goodwill arising from the acquisition of Radisson Hotels Americas, as of September 30, 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