How does Sonesta Simply Suites define fair value in its accounting standards?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
- Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
- Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
- Level 3 includes unobservable inputs that reflect assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, fair value is defined within applicable accounting standards as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, also known as an exit price. Sonesta Simply Suites measures its assets and liabilities using inputs from three levels of a fair value hierarchy.
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Sonesta Simply Suites has the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active. Level 2 inputs also consist of inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data. Level 3 includes unobservable inputs that reflect assumptions about what factors market participants would use in pricing the asset or liability, developed based on the best information available, including Sonesta Simply Suites's own data.
For a potential Sonesta Simply Suites franchisee, understanding these definitions is crucial for interpreting the financial statements provided in the FDD. Fair value measurements can impact how assets and liabilities are reported, which in turn affects the overall financial health assessment of the company. Franchisees should be aware of how Sonesta Simply Suites determines these values, as they can influence decisions related to investments and the perceived stability of the franchise system.