When does Embassy Suites begin amortization of franchise contracts?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise contracts are amortized using the straight-line method over their respective estimated useful lives, which is the contract term, generally including any extension periods that are at our sole option, and are generally 10 to 20 years. Amortization begins on the opening date of the hotel to which the franchise contract relates or the contract execution date, whichever is later. Amortization of franchise contract acquisition costs is recognized as a reduction to franchise royalty fees and amortization of costs to obtain franchise contracts is recognized as amortization expense in our statement of comprehensive income and member's equity.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, the amortization of franchise contracts begins on the later of two dates: the opening date of the hotel to which the franchise contract relates, or the contract execution date. Embassy Suites uses the straight-line method to amortize these contracts over their estimated useful lives, which typically range from 10 to 20 years, including any extension periods that are at the sole option of Embassy Suites.
For a prospective Embassy Suites franchisee, this means that the amortization of costs associated with acquiring the franchise will start either when the hotel opens or when the franchise agreement is signed, whichever occurs later. This amortization is recognized as a reduction to franchise royalty fees. Additionally, any costs incurred to obtain the franchise contract itself are amortized as an expense in the statement of comprehensive income and member's equity.
It's important to note that Embassy Suites evaluates the carrying value of its franchise contracts for any indicators of impairment. If such indicators exist, they perform an analysis to determine if the carrying value of the asset group is recoverable. If the carrying value is not recoverable and exceeds the estimated fair value, Embassy Suites will recognize an impairment loss. This could impact the financial statements and potentially affect the overall profitability picture for Embassy Suites and its franchisees.
In 2024, Embassy Suites recorded franchise contract intangible assets related to the acquisition of the Graduate brand. These assets are amortized over an estimated useful life of 15 years. Understanding these accounting practices is crucial for franchisees to assess the financial health and stability of the Embassy Suites franchise system.