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Acquisitions | 12 Months Ended
--- | ---
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions Radisson Hotels Americas Acquisition On August 11, 2022, the Company completed the acquisition of Radisson Hotels Americas. The accounting purchase price for the Transaction was $673.9 million, which includes the base purchase price of $675.2 million, and then adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. To fund the Transaction, Choice drew down $175.0 million on the Company's existing senior unsecured credit facility, and then funded the remainder with cash on hand. In connection with the acquisition, we recognized $40.9 million and $39.6 million during the years ended December 31, 2023 and 2022, respectively, of Radisson Hotels Americas related transaction, transition, and severance expenses which are included within business combination, diligence and transition costs and impairment of long-lived assets in the consolidated statements of income. Fair Values of the Assets Acquired and the Liabilities Assumed The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets acquired and the liabilities assumed on August 11, 2022. During the fourth quarter of 2022 and the first quarter of 2023, the Company recorded certain net measurement period adjustments that reduced goodwill by $9.1 million and increased goodwill by $1.5 million, respectively, which is presented in the table below. The Company made these measurement period adjustments to reflect the facts and circumstances that existed as of the acquisition date and did not result from any intervening events subsequent to the acquisition date. The measurement period adjustments resulted in no impact to our consolidated statements of income. The final valuation and related allocation of the purchase price was completed during the third quarter of 2023. The final allocation of the purchase price, including all measurement period adjustments, as presented in our consolidated balance sheets is as follows:
Assets acquired | August 11, 2022 - original |  | Measurement period adj - 4th quarter 2022 |  | Measurement period adj - 1st quarter 2023 |  | August 11, 2022 - as adjusted
Cash and cash equivalents | $ | 113,023 |  |  | $ | — |  |  | $ | — |  |  | $ | 113,023 |
Restricted cash | 10,403 |  |  | — |  |  | — |  |  | 10,403 |
Accounts receivable | 32,972 |  |  | 8,752 |  |  | (1,941) |  |  | 39,783 |
Notes receivables - current | 1,709 |  |  | — |  |  | (860) |  |  | 849 |
Prepaid expenses and other current assets | 8,139 |  |  | — |  |  | — |  |  | 8,139 |
Property and equipment | 125,441 |  |  | — |  |  | — |  |  | 125,441 |
Operating lease right-of-use assets | 42,315 |  |  | (2,016) |  |  | — |  |  | 40,299 |
Intangible assets | 447,400 |  |  | (300) |  |  | — |  |  | 447,100 |
Notes receivable - noncurrent | 2,592 |  |  | — |  |  | — |  |  | 2,592 |
Investment in affiliates | 471 |  |  | — |  |  | — |  |  | 471 |
Other assets | 2,129 |  |  | — |  |  | — |  |  | 2,129 |
Total assets acquired | $ | 786,594 |  |  | $ | 6,436 |  |  | $ | (2,801) |  |  | $ | 790,229 |
Liabilities assumed |  |  |  |  |  |  |
Accounts payable | 8,295 |  |  | (1,566) |  |  | (1,941) |  |  | 4,788 |
Accrued expenses and other current liabilities | 15,987 |  |  | 425 |  |  | 674 |  |  | 17,086 |
Deferred revenue - current(1) | 5,745 |  |  | 1,566 |  |  | — |  |  | 7,311 |
Liability for guest loyalty program - current(1) | 3,542 |  |  | 3,792 |  |  | — |  |  | 7,334 |
Long-term debt | 55,975 |  |  | — |  |  | — |  |  | 55,975 |
Long-term deferred revenue(1) | 26,499 |  |  | (3,915) |  |  | — |  |  | 22,584 |
Deferred compensation and retirement plan obligations | 9,265 |  |  | — |  |  | — |  |  | 9,265 |
Operating lease liabilities | 42,705 |  |  | (2,016) |  |  | — |  |  | 40,689 |
Liability for guest loyalty program - noncurrent(1) | 10,180 |  |  | (1,443) |  |  | — |  |  | 8,737 |
Other liabilities | 3,052 |  |  | 543 |  |  | — |  |  | 3,595 |
Total liabilities assumed | $ | 181,245 |  |  | $ | (2,614) |  |  | $ | (1,267) |  |  | $ | 177,364 |
Fair value of net assets acquired | $ | 605,349 |  |  | $ | 9,050 |  |  | $ | (1,534) |  |  | $ | 612,865 |
Goodwill | 68,507 |  |  | (9,050) |  |  | 1,534 |  |  | 60,991 |
Total purchase consideration | $ | 673,856 |  |  | $ | — |  |  | $ | — |  |  | $ | 673,856 |
(1) The deferred revenue (including deferred affiliation fees) and the liability for guest loyalty program balances were assumed at their carrying value at the date of the acquisition pursuant to the application of ASU 2021-08. Refer to Note 1 for more information. Property and Equipment The following table presents the estimated fair value of the acquired property and equipment, which is primarily concentrated at three acquired hotel properties, and their estimated weighted average remaining useful lives.
| Estimated Useful Life |  | Estimated Fair Value
| (in years) |  | (in thousands)
Land | N/A |  | $ | 7,159 |
Construction in progress | N/A |  | 3,190 |
Building and leasehold improvements | 24.4 |  | 93,934 |
Site improvements | 23.1 |  | 586 |
Furniture, fixtures and equipment | 3.9 |  | 8,334 |
Computer equipment and software | 2.0 |  | 12,238 |
Total property and equipment |  |  | $ | 125,441 |
We estimated the fair value of the property and equipment through a combination of the income, cost, and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, discount rates, capitalization rates, and the capital expenditure needs of the hotel properties. Identified Intangible Assets The following table presents the estimated fair values of the acquired identified intangible assets and their estimated useful lives:
| Estimated Useful Life |  | Estimated Fair Value
| (in years) |  | (in thousands)
Trade names | N/A |  | $ | 223,700 |
Franchise agreements | 15.5 |  | 220,100 |
Management agreements | 15.5 |  | 3,300 |
Total intangible assets |  |  | $ | 447,100 |
The fair value of the trade names was estimated using the relief-from-royalty method. This method applies an estimated royalty rate to the forecasted future cash flows and discounted to the present value. The fair value of the franchise and management agreements was estimated using a multi-period excess earnings method, which is a variation of the income approach. This method uses the present value of the incremental after-tax cash flows attributable to the intangible asset. These valuation methodologies utilize Level 3 assumptions. Debt Assumed As part of the Transaction, we assumed a mortgage loan with a principal balance of $53.5 million with a maturity date of August 7, 2024 related to an acquired hotel property. The mortgage loan had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024. Subsequent to the acquisition date, the mortgage loan and the outstanding interest and fees was repaid in full in the amount of $56.0 million using cash we acquired in the Transaction. Additionally, the interest rate cap agreement was terminated, which resulted in a $1.9 million payment to Choice. In conjunction with assuming the mortgage loan, we acquired $10.4 million in restricted cash, for which the restrictions were lifted upon repayment of the mortgage loan. Operating Leases The Company measured the assumed operating lease liabilities at the present value of the remaining payments as of the acquisition date, which were discounted using the Company's applicable incremental borrowing rate in accordance with Leases (Topic 842). The corresponding acquired right-of-use assets were measured at the value of the operating lease liabilities, and then further adjusted for favorable or unfavorable lease terms as compared to market lease terms. Income Taxes Pursuant to the terms of the Transaction, the parties agree to jointly make a valid, timely election under Section 338(h)(10) of the U.S. Internal Revenue Code and under any similar provisions of state or local law with respect to the purchase of the shares of Radisson Hotels Americas. Under this election, the parties agreed to treat the Transaction for federal income tax purposes as if it had been structured as an asset sale and purchase. As a result of this election, the tax basis of the assets acquired and the liabilities assumed by Choice were reset to fair value on the date of the acquisition, which results in the elimination of any previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill. Pro Forma Results of Operations The following unaudited pro forma information presents the combined results of operations of Choice and Radisson Hotels Americas as if the Transaction was completed on January 1, 2021, but using the fair values of the assets acquired and the liabilities assumed as of the acquisition date. The unaudited pro forma information reflects adjustments relating to (i) the allocation of the purchase price and related adjustments, including incremental depreciation and amortization expense based on the fair values of the acquired property and equipment and intangible assets, (ii) the incremental impact of the Revolver draw on interest expense and the amortization of financing costs, (iii) nonrecurring transaction costs, and (iv) the income tax impact of the aforementioned pro forma adjustments. As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the transaction had occurred at the beginning of the period presented, nor are they indicative of the future results of operations.
| Year Ended December 31,
(in thousands) | 2022 |  | 2021
Revenues | $ | 1,551,775 |  |  | $ | 1,263,988 |
Net income | 368,449 |  |  | 207,023 |
Radisson Hotels Americas Results of Operations The Company's consolidated statements of income include Radisson Hotels Americas' results of operations since the August 11, 2022 acquisition date. Radisson Hotels Americas contributed $104.2 million and $1.2 million in total revenues and net income, respectively, for the year ended December 31, 2022. Goodwill The $61.0 million of goodwill is primarily attributable to the value we expect to realize from the existing customer base, improvements in Revenue per Available Room ("RevPAR"), cost synergies, and new agreements signed with franchisees and developers. Goodwill for the Transaction is fully attributable to the Hotel Franchising & Management reportable segment and is fully deductible for tax purposes. Refer to Note 6 for a reconciliation of the Company's goodwill balance. 2021 & 2022 asset acquisitions In September 2021 and April 2022, the Company reached settlements with independent borrowers holding senior and mezzanine loans that were classified as collateral-dependent and collateralized by operating hotels. The key terms of the settlements resulted in a deed in lieu of foreclosure on each operating hotel in exchange for releasing the obligations pursuant to the senior and mezzanine loans and the associated franchise agreements, as exchanged on October 1, 2021 and April 14, 2022, respectively. As collateral-dependent financial assets, the expected credit losses as captured in notes receivable, net of allowance for credit losses, on the consolidated balance sheets immediately prior to exchange were determined based on the fair value of the operating hotels. The acquisition accounting was also based on the fair value of the operating hotels. The fair values were estimated using an income approach valuation method based on the discounted cash flows of the collateralized operating hotel utilizing historical operating performance, industry projections for the market, and comparable sales capitalization rates. These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy because there are unobservable inputs which are significant to the overall fair value. The acquisition dates for these hotels were October 1, 2021 and April 14, 2022 and had fair values at the time of acquisition of approximately $21.1 million and $20.4 million, respectively. In accordance with the provisions of ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"), each purchase represented an asset acquisition based on the concentration of value in the acquired land and building. The notes receivable, net of allowance for credit losses, balances were re-characterized and attributed to each asset class based on a relative fair value allocation to the qualifying assets. The relative fair values for each asset class were estimated using a combination of income and market approach valuations methods. For the October 1, 2021 acquisition, the $21.1 million balance was re-characterized as $4.8 million to land, $14.2 million to building and improvements, $1.8 million to furniture, fixtures, and equipment, and $0.3 million to the net assets assumed. For the April 14, 2022 acquisition, the $20.4 million balance was re-characterized as $3.3 million to land, $16.6 million to building and improvements, $1.3 million to furniture, fixtures, and equipment, and $(0.8) million to the net liabilities assumed.

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