How are Caption By Hyatt's preferred equity investments classified in the fair value hierarchy?

According to Caption By Hyatt's 2025 Franchise Disclosure Document, the company classifies its preferred equity investments as Level Three in the fair value hierarchy. The fair values of these investments are estimated using probability-based discounted future cash flow models, which rely on current market inputs for similar types of arrangements.

The primary sensitivity in these models, as noted in the FDD, is the selection of appropriate discount rates and probability weighting. This means that the estimated fair value of Caption By Hyatt's preferred equity investments is highly dependent on these assumptions. Fluctuations in these assumptions could lead to different estimates of fair value, which could impact the company's financial statements.

For example, in conjunction with the sale of Hyatt Regency Orlando, Caption By Hyatt received a $265 million preferred equity investment. The fair value of this investment was estimated to be approximately $188 million, utilizing primarily Level Three assumptions related to probability weighting, discount rates, and expected timing of payments. Similarly, a $194 million preferred equity investment was part of HTM debt securities, net of a $35 million unamortized discount, further illustrating the application of Level Three classifications and fair value estimations for such investments.