How are base management fees for Atwell Suites hotels recognized?
Atwell_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Under management agreements, the Company's performance obligation is to provide hotel management services and a license to use the Company's trademarks and other intellectual property. Base and incentive management fees are typically charged. Base management fees are typically a percentage of total hotel revenues and incentive management fees are generally based on the hotel's profitability or cash flows. Both are treated as variable consideration. Like franchise fees, base management fees are recognized as the underlying hotel revenues occur. Incentive management fees are recognized over time when it is considered highly probable that the related performance criteria for each annual period will be met, provided there is no expectation of a subsequent reversal of the revenue.
Source: Item 23 — Receipts (FDD pages 99–486)
What This Means (2025 FDD)
According to the 2025 FDD, Atwell Suites recognizes base management fees as the underlying hotel revenues occur. These fees are part of the revenue the company receives under management agreements, where Atwell Suites' performance obligation includes providing hotel management services and licensing its trademarks and intellectual property. Base management fees are typically calculated as a percentage of the total hotel revenues.
This means that Atwell Suites recognizes revenue from these fees as the hotel generates income, aligning the revenue recognition with the actual delivery of services. This approach treats base management fees as variable consideration, which is standard practice in the hotel management industry, as the fees directly correlate with the hotel's financial performance.
Incentive management fees, which are based on the hotel's profitability or cash flows, are recognized differently. Atwell Suites recognizes these fees over time when it is highly probable that the performance criteria for each annual period will be met, and there is no expectation of a subsequent reversal of the revenue. This cautious approach ensures that revenue is only recognized when it is reasonably certain to be earned, reflecting a conservative accounting practice.