Wyndham Hotels & Resorts, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Long-Lived Assets

Long-Lived Assets

9 Months Ended

Sep. 30, 2020


6. LONG-LIVED ASSETS

Property, plant and equipment

As a result of COVID-19 and the related governmental preventative and protective actions to slow the spread of the virus, the travel industry is continuing to experience a sharp decline in travel demand. As a result, the Company closed its two owned hotels temporarily for April and May 2020. Due to the temporary closure of such hotels and the continued decrease in travel demand, the Company has evaluated the recoverability of its net property plant and equipment associated with its two owned hotels for impairment in each of the quarters of 2020 and believes that it is more likely than not that the carrying value of those assets are recoverable from future expected cash flows, on an undiscounted basis, from such assets.

Although the Company believes that it is more likely than not that the carrying values of its net property, plant and equipment for its two owned hotels are not impaired, the impact of COVID-19 and the ultimate duration remains highly uncertain. Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and the property, plant and equipment associated with its owned hotels may be exposed to impairment.

Property, plant and equipment, net as of September 30, 2020 and December 31, 2019 was $284 million and $307 million, respectively.

Intangible assets

As a result of COVID-19 and the significant negative impact it has had on travel demand, the Company performed an impairment analysis on all its intangible assets in the second quarter of 2020. The Company evaluated the carrying value of each of its indefinite-lived intangible assets compared to their respective estimated fair values. The fair value of each of its indefinite-lived intangible assets is estimated using a discounted cash flow methodology. The Company also evaluated the recoverability of its amortizable intangible assets by comparing the respective carrying values of the assets to the future expected cash flows on an undiscounted basis, to be generated from such assets. The Company has determined through such analyses that certain of its trademarks, as well as, goodwill associated with its owned hotel reporting unit were impaired. Accordingly, the Company recorded impairment charges totaling $205 million in the second quarter of 2020 to reduce the carrying value of those assets to their estimated fair values. Such charges were reported within impairments, net on the Condensed Consolidated Statement of Income and $191 million and $14 million were charged to the hotel franchising segment and the hotel management segment, respectively.

The following is the breakout of the intangible impairment charges recorded in the second quarter of 2020:


Intangible Asset	Book Value		Impairment Charges		Adjusted Fair Value
Owned hotel reporting unit goodwill	$	14	$	(14)	$	—
La Quinta trademark	710		(155)		555
Other trademarks (a)	103		(36)		67
Total	$	827	$	(205)	$	622

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(a) Represents the impairments of three of the Company's trademarks.

During the third quarter of 2020, the Company has determined through its analysis, that for its intangible assets and goodwill, it is more likely than not that the fair value of its goodwill and trademarks and the future expected cash flows on an undiscounted basis for its franchise agreements and management contracts are in excess of their carrying values. However, should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and its intangible assets within its hotel franchising and hotel management reporting units may be exposed to future impairments. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, the Company may be required to write-down all or a portion of its remaining goodwill, trademarks, franchise agreements and management contracts, which would adversely impact earnings.

Intangible assets as of September 30, 2020 and December 31, 2019 consisted of the following:


	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Impairment		Net Carrying Amount		Gross Carrying Amount		Accumulated Impairment		Net Carrying Amount
Goodwill	$	1,539	$	14	$	1,525	$	1,539	$	—	$	1,539

	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Unamortized intangible assets:
Trademarks					$	1,202					$	1,393

Amortized intangible assets:
Franchise agreements	$	895	$	480	$	415	$	895	$	460	$	435
Management agreements	136		30		106		137		23		114
Trademarks	2		1		1		3		1		2
Other	2		1		1		3		1		2
	$	1,035	$	512	$	523	$	1,038	$	485	$	553