What are Level 3 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 Level 1, Level 2 and Level 3 of the fair value hierarchy.
Cash, accounts receivable, and accounts payable carrying values on our consolidated balance sheets approximate fair value due to the short-term nature of these items.
We estimate the fair value of our notes receivable using expected future receipts discounted at risk-adjusted rates, both of which are Level 3 inputs.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites' 2025 Franchise Disclosure Document, Level 3 inputs are used to measure the fair value of assets and liabilities. Level 3 inputs are defined as unobservable inputs that reflect assumptions about what factors market participants would use in pricing the asset or liability. Sonesta Simply Suites develops these inputs based on the best information available, including their own data.
For Sonesta Simply Suites, Level 3 inputs are used to estimate the fair value of notes receivable. The company estimates this fair value using expected future receipts discounted at risk-adjusted rates.
In practical terms, this means that Sonesta Simply Suites uses its own assumptions and data, rather than relying on readily available market prices, to determine the value of certain assets. This approach is used when observable market data is not available, requiring the company to make its own judgments about the appropriate valuation. Prospective franchisees should be aware that these valuations are based on internal estimates and may not reflect actual market values.