What are Level 1 inputs for Sonesta Simply Suites' fair value measurements?
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' 2025 Franchise Disclosure Document, fair value measurements are categorized into three levels. Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access at the measurement date. This means that the valuation relies on readily available and transparent market data for assets or liabilities that are exactly the same as the ones being measured.
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 inputs include unobservable inputs that reflect assumptions about what factors market participants would use in pricing the asset or liability.
The FDD states that Sonesta Simply Suites develops these Level 3 inputs based on the best information available, including their own data. This multi-tiered approach ensures that assets and liabilities are measured as accurately as possible, using the most relevant and reliable data available at the time of measurement. For a prospective franchisee, understanding these levels is crucial for interpreting the financial statements and assessing the overall financial health and valuation practices of Sonesta Simply Suites.