Receivables and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2024

Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract]

Receivables and Allowance for Credit Losses

Notes Receivable

The Company has provided financing in the form of notes receivable loans to franchisees in order to support the development of hotel properties in strategic markets. The Company's credit quality indicator is the level of security in the note receivable.

The following table summarizes the composition of the notes receivable balances by credit quality indicator and the allowance for credit losses:


(in thousands)	September 30, 2024		December 31, 2023
Senior	$	110,196	$	85,919
Subordinated	15,518		17,004
Unsecured	5,096		5,359
Total notes receivable	$	130,810	$	108,282
Less: allowance for credit losses	9,007		8,616
Total notes receivable, net of allowance for credit losses	$	121,803	$	99,666
Current portion, net of allowance for credit losses	$	22,081	$	20,766
Long-term portion, net of allowance for credit losses	$	99,722	$	78,900

The following table summarizes the amortized cost basis of the notes receivable by the year of origination and credit quality indicator:


(in thousands)	2024		2023		2022		2021		2020		Prior		Total
Senior	$	24,475	$	—	$	—	$	—	$	—	$	85,721	$	110,196
Subordinated	—		3,499		—		—		—		12,019		15,518
Unsecured	79		—		111		1,286		801		2,819		5,096
Total notes receivable	$	24,554	$	3,499	$	111	$	1,286	$	801	$	100,559	$	130,810

The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses:


(in thousands)	September 30, 2024		December 31, 2023
Beginning balance	$	8,616	$	10,172
Provision for credit losses	1,067		763
Recoveries	(676)		(2,319)
Ending balance	$	9,007	$	8,616

As of September 30, 2024 and December 31, 2023, one note receivable loan with a senior credit quality indicator met the definition of collateral-dependent and is collateralized by the membership interests in the borrowing entities and the associated land parcel. The Company used a market approach that uses quoted market prices to value the underlying collateral. The Company reviewed the borrower's financial statements, economic trends, industry projections for the market, and comparable sales capitalization rates, which represent significant inputs to the cash flow projections. These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy because they are unobservable inputs which are significant to the overall fair value. Based on the Company's analysis, the fair value of the collateral secures substantially all of the carrying value of the respective note receivable loan. The allowance for credit losses attributable to the collateral-dependent note receivable loan was $2.2 million as of September 30, 2024 and December 31, 2023.

During the nine months ended September 30, 2024 and during the year ended December 31, 2023, the recoveries were primarily associated with cash collections pursuant to a settlement agreement with a borrower.

The following table summarizes the past due balances by credit quality indicator of the notes receivable:


(in thousands)	1- 30 days Past Due		31-89 days Past Due		> 90 days Past Due		Total Past Due		Current		Total Notes Receivable
As of September 30, 2024
Senior	$	—	$	—	$	15,200	$	15,200	$	94,996	$	110,196
Subordinated	—		—		—		—		15,518		15,518
Unsecured	—		—		400		400		4,696		5,096
	$	—	$	—	$	15,600	$	15,600	$	115,210	$	130,810
As of December 31, 2023
Senior	$	—	$	—	$	15,200	$	15,200	$	70,719	$	85,919
Subordinated	—		2,936		—		2,936		14,068		17,004
Unsecured	—		—		400		400		4,959		5,359
	$	—	$	2,936	$	15,600	$	18,536	$	89,746	$	108,282

The amortized cost basis of the notes receivable in a non-accrual status was $15.2 million and $15.9 million as of September 30, 2024 and December 31, 2023, respectively.

Variable Interest through Notes Receivable

The Company has issued notes receivable loans to certain entities that have created variable interests in the associated borrowers totaling $116.8 million and $95.1 million as of September 30, 2024 and December 31, 2023, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). For collateral-dependent loans, the Company has no exposure to the borrowing VIE beyond the respective note receivable and the limited commitments which are addressed in Note 12.

Accounts Receivable

Accounts receivable consists primarily of franchise and related fees due from the hotel franchisees and are recorded at the invoiced amount.

During the nine months ended September 30, 2024, the Company recognized provisions for credit losses on accounts receivable of $8.2 million in selling, general and administrative expenses, and $7.5 million in other expenses from franchised and managed properties, in the consolidated statements of income. During the year ended December 31, 2023, the Company recognized provisions for credit losses on accounts receivable of $7.5 million in selling, general and administrative expenses, and $9.0 million in other expenses from franchised and managed properties, in the consolidated statements of income. During the nine months ended September 30, 2024, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $10.7 million. During the year ended December 31, 2023, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $0.6 million.