What principal inputs are used to estimate the fair values of The Standardx's financing receivables?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
ately $440 million and $133 million at December 31, 2024 and December 31, 2023, respectively. The fair values, which are classified as Level Three in the fair value hierarchy, are estimated using discounted future cash flow models. The principal inputs used are projected future cash flows and the discount rate, which is generally the effective interest rate of the loan.
7. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Bahia Principe—During the year ended December 31, 2024, we completed the Bahia Principe Transaction (see Note 4) for €419 million of base consideration, subject to customary adjustments related to working capital, cash, and indebtedness, and including €60 million of deferred consideration payable at future dates. We may pay additional variable contingent consideration through 2034 primarily related to the achievement of certain milestones for the development of additional hotels to be managed by the joint venture. The contingent consideration is payable at each hotel opening and is based on a multiple of stabilized base and incentive management fee revenues, and therefore, we are unable to reasonably estimate our maximum potential future consideration.
We closed on the transaction on December 27, 2024, paid cash of €359 million (approximately $374 million) and accounted for the transaction as a business combination as we are the primary beneficiary of the VIE (see Note 4).
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the company estimates the fair value of its financing receivables using discounted future cash flow models. The principal inputs for these models are projected future cash flows and the discount rate, which is generally the effective interest rate of the loan.
Specifically, the FDD mentions that on the sale of Hyatt Regency Orlando, The Standardx provided $50 million of seller financing for an adjacent undeveloped land parcel. Upon the sale, the fair value of this seller financing was estimated to be approximately $34 million. This estimate was derived using a discounted future cash flow model that includes assumptions and judgments regarding the discount rate and expected timing of payments. These assumptions are classified as Level Three assumptions, indicating they are based on inputs that cannot be corroborated by observable market data and reflect significant management judgment.
Similarly, in another instance, The Standardx estimated the fair value of seller financing to be approximately $8 million, recording it as an unsecured financing receivable. This fair value was also estimated using a discounted future cash flow model, incorporating assumptions and judgments regarding the discount rate, which is also considered a Level Three assumption. This highlights the importance of these inputs in determining the fair value of financing receivables for The Standardx.
For a prospective franchisee, this information is relevant because it shows how The Standardx values its financial instruments and the level of judgment involved. The use of Level Three assumptions indicates that these valuations are highly dependent on the company's internal estimates and projections, which may be subject to change and could impact the reported value of these assets. Understanding these valuation methods can help a franchisee better assess the financial health and reporting practices of The Standardx.