What are the two ways that royalties are calculated for Sonesta Select Sonesta Essential franchise fees?

According to the 2025 FDD, Sonesta Select Sonesta Essential calculates franchise fees, which are royalties, in one of two ways. The franchise fee is generally based on a percentage of the hotel's monthly gross room revenue. Alternatively, the franchise fee may be a fixed monthly fee that is based on the number of rooms in the hotel. These fees are typically billed and collected monthly, with revenue generally recognized at the same time as billing.

For a prospective franchisee, this means that the amount of royalties paid to Sonesta Select Sonesta Essential will depend on the specific agreement. For midscale agreements, royalties are typically based on sales or usage of the hotel. For economy agreements, royalties and marketing fees are typically a fixed fee based on the room count of the hotel.

The method of royalty calculation can significantly impact a franchisee's profitability. A percentage of gross room revenue means royalties fluctuate with occupancy and room rates. A fixed monthly fee provides predictable costs but doesn't adjust for market conditions. Franchisees should carefully consider which payment structure aligns best with their business strategy and market expectations.

It is important to note that the FDD mentions that fixed upfront fees usually represent an insignificant portion of the transaction price. Additionally, any consideration paid to incentivize hotel owners to enter into franchise contracts is capitalized and reduces revenues as amortized over the length of the contract.