What is the basis for the fair values of intangible assets acquired by Caption By Hyatt?
Caption_By_Hyatt Franchise · 2025 FDDAnswer from 2025 FDD Document
Our consolidated balance sheet at December 31, 2024 reflects preliminary estimates of the fair value of the assets acquired and liabilities assumed based on available information as of the acquisition date. The fair values of intangible assets acquired were estimated using either discounted future cash flow models or the relief from royalty method, both of which include revenue projections based on the expected contract terms and long-term growth rates, which are primarily Level Three assumptions. The fair values of performance guarantee liabilities assumed were estimated using Monte Carlo simulations to model the probability of possible outcomes. The valuation methodology includes assumptions and judgments regarding discount rates, volatility, and hotel operating results, which are primarily Level Three assumptions (see Note 15). The remaining assets and liabilities were recorded at their carrying values, which approximate their fair values.
We will continue to evaluate the contracts acquired and the underlying inputs and assumptions used in our valuation of assets acquired and liabilities assumed. Accordingly, these estimates, along with any related tax impacts, are subject to change during the measurement period, which is up to one year from the date of acquisition.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Caption By Hyatt's 2025 Franchise Disclosure Document, the fair values of intangible assets acquired are estimated using either discounted future cash flow models or the relief from royalty method. These methods rely on revenue projections based on expected contract terms and long-term growth rates. These projections and rates are considered Level Three assumptions.
These Level Three assumptions involve significant judgment and are based on factors that are not readily observable in the market. This means that Caption By Hyatt relies on its own internal estimates and projections when determining the value of these intangible assets. These valuations are preliminary and subject to change during a measurement period of up to one year from the acquisition date as Caption By Hyatt continues to evaluate contracts and underlying assumptions.
For prospective Caption By Hyatt franchisees, it's important to understand that these valuations can impact the financial statements of the company and may affect key financial ratios and metrics. While these intangible assets may not directly impact the day-to-day operations of a franchise, they do reflect the overall financial health and strategy of Caption By Hyatt. Franchisees should consider the potential impact of these valuations when assessing the financial stability and long-term prospects of the franchise system.
Furthermore, the FDD indicates that the remaining assets and liabilities are recorded at their carrying values, which approximate their fair values. This implies that these items are considered to be relatively liquid and easily valued, reducing the risk of material misstatement. However, the reliance on Level Three assumptions for intangible assets highlights the importance of carefully reviewing Caption By Hyatt's financial statements and understanding the assumptions and judgments that underpin these valuations.