How does Hawthorn Suites By Wyndham recognize incentive fees from its management contracts?
Hawthorn_Suites_By_Wyndham Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company provides management services for certain international hotels under management contracts. The Company's standard management agreement typically has a term of 10 to 20 years. The Company's management fees are comprised of base fees, which are typically a specified percentage of gross revenues from hotel operations, and, in some cases, incentive fees, which are typically a specified percentage of a hotel's gross operating profit. The base fees are recognized when the underlying sales occur and the management services are performed. Incentive fees are recognized when determinable, which is when the Company has met hotel operating performance metrics and the Company has determined that a significant reversal of revenues recognized will not occur.
Source: Item 23 — RECEIPTS (FDD pages 92–402)
What This Means (2025 FDD)
According to Hawthorn Suites By Wyndham's 2025 Franchise Disclosure Document, the company provides management services for certain international hotels under management contracts, which typically span 10 to 20 years. Hawthorn Suites By Wyndham's management fees consist of base fees, usually a percentage of gross hotel revenues, and sometimes incentive fees, which are a percentage of the hotel's gross operating profit.
The base fees are recognized as the underlying sales occur and the management services are performed. The incentive fees, however, are recognized only when they are determinable. This means Hawthorn Suites By Wyndham recognizes the incentive fees when the company has met specific hotel operating performance metrics.
Furthermore, Hawthorn Suites By Wyndham must determine that recognizing the revenues will not result in a significant reversal. This cautious approach to recognizing incentive fees ensures that revenue is only recorded when it is highly likely to be earned, reflecting a conservative accounting practice. This could mean that franchisees may not see the benefit of these fees reflected immediately, as there is a performance threshold that must be met first.